CGI Group is building momentum, National Bank Financial says

Following the company’s second quarter results, National Bank Financial analyst Richard Tse remains upbeat about CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A).

This morning, CGI Group reported its Q2, 2018 results. The company earned $274.4-million on revenue of $3.0-billion, a topline that was up 8.3 per cent over the same period last year.

“I am pleased with the continued progress our team is making against our growth plan,” CEO George D. Schindler said. “Revenue, net earnings, bookings and cash from operations are all up year over year, reflecting our ability to create and realize new opportunities to help clients become digital organizations and for CGI to remain an active consolidator in the market.”

Tse says he spots some postive trends in the quarterly results.

“CGI reported solid FQ2 (March) results,” he says. “More importantly, it appears there’s building momentum when it comes to the outlook for bookings, revenue and margins. With respect to the FQ2 results, strong constant currency revenue growth came largely from the U.S. – in particular Commercial and State Government, and Federal. An equally important leading indicator of revenue was bookings which were exceptionally strong relative to the prior quarter and last year. But for us, we thought the most notable takeaway revolved around an expanding margin profile going forward. In our view that’s most notable given the impact margin changes can have on EPS in light of the meaningful revenue base. And CGI’s comments around a strengthening outlook for margins sets the name apart from comparables which have been signalling margin pressure.”

In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of $85.00 on CGI Group, implying a return of 12 per cent at the time of publication.

Tse thinks CGI will generate EBITDA of $2.15-billion on revenue of $11.62-billion in fiscal 2018. In 2019, he expects the compay will produce EBITDA of $2.23-billion on a topline of $11.94-billion.