CGI Group is a buy right now, this investor says

If you’re looking for a solid Canadian tech play, CGI Group (CGI Group Stock Quote, Chart, News TSX:GIB.A) should be top of mind, says Scotia Wealth Management portfolio manager Cole Kachur, who sees further upside to the name.

There are big names in Canadian tech, of course, with the likes of Shopify now standing as the largest company on the TSX by market capitalization, but if you really want big, it’s CGI, the IT consulting and systems integration business which at 70,000 employees worldwide is Canada’s largest tech company.

The Montreal-headquartered CGI has the financial muscle, as well, reporting revenues of $3.05 billion in its latest quarter, its fiscal third delivered in late July. That top line was down 2.2 per cent year-over-year, however, with EBITDA coming in at $448.0 million, also down 5.5 per cent.

But even with a COVID-inspired downturn in business, CGI boasts a huge backlog, standing at $22.30 billion as of second quarter’s end, with cash from operations hitting $584.8 million.

Kachur says that kind of momentum is worth taking notice of.

“It's a technology-based company and it’s got a pretty robust pipeline,” says Kachur, speaking on BNN Bloomberg on Wednesday. “They had really nice earnings just over the last month or so, and a lot of firms out there bumped their targets up.”

CGI has been a stellar performer over the past decade, returning to investors almost 500 per cent over that time span, but the stock has yet to really pull ahead like many tech names have in recent months. Year-to-date, CGI is currently down 15 per cent.

But CGI surprised analysts with its fiscal Q3. Its top line of $3.05 billion beat the consensus guess of $2.98 billion and adjusted EBIT of $448 million was better than the Street’s $435 million.

In a report to clients on the quarterly numbers, National Bank analyst Richard Tse said the selloff this year on CGI has been overdone.

“Despite a year-over-year decline, care of the obvious health backdrop, those results underscored resilience in the company’s operating model,” said Tse in a July 29 note. CGI management is upbeat on its prospects for the rest of the year, as well, saying the Q3 press release that market conditions for its end-to-end services will improve and the company should see growth both organically and through acquisitions.

Kachur says there’s room for the stock to grow from its current perch in the low $90 range.

“CGI is trading a little bit below its 52-week or all-time highs but I do think that they're most likely going to continue to move up and get into least into the $100s or $110s, for sure,” Kachur said.

“It’s a company that I own and that I like and certainly there's not a tonne of more tech-oriented names on the TSX, but that would be one that I think would make a lot of sense for people,” he said.