It’s had a steady upward run since last summer, but National Bank Financial analyst Richard Tse thinks there is still upside in CGI Group (TSX:GIB.A).
This morning, CGI reported its Q3, 2018 results. The company earned $283.3-million on revenue of $2.9-billion, a topline that was up 3.8 per cent when expressed in constant currency.
“Our strong performance in Q3 is in line with the ongoing execution of our plan and reflects our investments in pursuit of both the build and buy pillars of the growth strategy,” CEO George D. Schindler said. “I’m most encouraged by the momentum and quality of our bookings over the last 12 months, which is driven by the confidence clients are placing in CGI to implement their digital strategies.”
Tse says that was an essentially in-line quarter, with all underlying metrics tracking to his expectations. The analyst says he is still of the opinion that this is a $100.00 stock, a figure that implied a return of 22 per cent at the time of publication.
“Bottom line, our thesis on GIB.a / GIB is unchanged,” he says. “We believe CGI is moving up the value chain with an increasing proportion of revenue from IP and digital (higher margin), organically built and acquired,” the analyst says. “We like CGI’s defensive (recurring cash flow and de-leveraging) attributes and the obvious optionality from M&A particularly given a consistent record of execution. We reiterate our Outperform rating and $100 target, which implies a 21.7x P/E and 13.8x EV/EBITDA on our revised F2019 estimates (was 21.7x and 13.6x, respectively).”
Tse thinks CGI will generate EBITDA of $2.1-billion on revenue of $11.47-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $2.21-billion on a topline of $11.78-billion the following year.
Tse maintains his “outperform” rating on CGI.