CGI Group gets price target raised to $120.00 at National Bank Financial

After what he describes as a “solid” second quarter, National Bank Financial analyst Richard Tse has raised his twelve month target price on CGI Group (CGI Group Stock Quote, Chart TSX:GIB.A).

This morning, CGI Group reported its Q2, 2019 results. The company earned $318.3-million on revenue of $3.1-billion, a topline that was up 4.7 per cent, on a constant currency basis.

“I am pleased with the positive momentum our team has generated in the first half of fiscal 2019, as demonstrated by the growth in each of our operating segments worldwide, as well as a growing pipeline of future opportunities,” CEO George D. Schindler said. “These results reflect the strength of our build and buy strategy, underscoring our position as our clients’ end-to-end enterprise partner of choice.”

Tse says these results were essentially in-line with his expectations of a solid quarter, but the analyst says the real story is the foundation for growth the company has laid.

“(The Q2) results were solid, what was most interesting to us was all the data that’s not fully apparent in the results, which speaks to a Company fortifying the foundation for growth and potential margin expansion,” he says. “With respect to the results, we liked the continued strong book-to-bill ratio of 106% in the quarter and 113% TTM, organic growth accelerating to 4% y/y, Adj. EBIT margin expansion of 40 bps y/y and strong CFO of $462 mln that allowed flexibility to buyback $159 mln of stock (1.9 mln shares).”

The analyst says CGI is chasing better business now.

“Bottom line, our thesis on GIB.a / GIB is unchanged. We continue to believe CGI is moving up the value chain with an increasing proportion of revenue from IP and digital (higher margin), organically built and acquired,” Tse addd. “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.”

In a research update to clients today, Tse maintained his “Buy” rating, but raised his one-year price target on CGI from $100.00 to $120.00, implying a return of 28 per cent at the time of publication.

Tse thinks CGI will post EBITDA of $2.22-billion on revenue of $12.1-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $2.38-billion on a topline of $12.82-billion the following year.