CGI Group is the undiscovered gem of Canadian tech, this investor says

It may not have taken flight this year like many of the big tech names south of the border but Canada’s own CGI Group (CGI Group Stock Quote, Chart, News TSX:GIB.A) should see its business grow during the pandemic, and that’s a trend likely to continue, says portfolio manager Brendan Caldwell.

“We do own it in our North American equity strategy, and it is a sort of undiscovered secret in Canada as being one of the leading technology consulting firms,” said Caldwell, CEO of Caldwell Investment Management on BNN Bloomberg on Monday.

As has been clear for a while now, the societal shifts caused by COVID-19 have created a pressing need for well-functioning work-from-home environments, a theme highlighted in a white paper from CGI in August titled “Charting the path forward with resilience and adaptability.” Based on consultive conversations with business and IT executives, the report put forward three organizational capabilities needed to navigate the current challenges: business agility, rethinking the tech supply chain and enabling the future of work through digital employee tools.

“The crisis has compelled us to ask many fundamental questions about the way we live, interact and work,” said CGI president and CEO and author of the white paper, George D. Schindler, in a press release. “Clearly many changes will occur but one thing is certain: technology will continue to be at the heart of future value chains that serve consumers and citizens. While many are making bold predictions on the ‘what’ and ‘when’ of the new normal, we believe that it is more important than ever to be centred on ‘how’ to create value.”

CGI’s share price had been climbing steadily for more than ten years but the stock has had its troubles in 2020 and remains 22 per cent off its all-time high set in late January. Year-to-date, GIB.A is down 17 per cent.

CGI beat analysts’ estimates in its latest quarterly report, delivered in late July, but the numbers appeared to nonetheless show a negative impact from the pandemic. Revenue of $3.05 billion was down 2.2 per cent from a year earlier while adjusted EBIT of $448.0 million was down 5.5 per cent from a year ago. At the time, management said market conditions for the company’s products “will gradually improve” over the rest of 2020. Caldwell agrees.

“I think this is Canada’s answer to all of the transformation that companies are needing to do in their businesses, which has done nothing but accelerate,” Caldwell said. “A big portion of our portfolios are these types of companies like CGI —it’s the leading Canadian one that will enable companies to keep up with the current trends and, if nothing else, these trends that we’ve seen developing slowly over the last number of years from outsourcing to work at home, they’ve only been accelerated.”

“So, CGI and and other companies in this space, we think are going to continue to do very, very well. I think it’s a good company to start owning,” he said.