CGI Group is about low drama and steady execution, National Bank says

After “solid” first quarter results, National Bank Financial analyst Richard Tse is still bullish on CGI Group (CGI Group Stock Quote, Chart, News, Analysts, Financials TSX:GIB.A)

On January 31, CGI reported its Q1, 2024 results. The company posted Adjusted EBIT of $584.2-million on revenue of $3.60-billion, a topline that was up 4.4 per cent over the same period a year prior.

“CGI [Inc.] began fiscal year 2024 in a strong position, again demonstrating the resilience of our model and the disciplined execution of our plan,” CEO George D. Schindler said. “The combination of our trusted client partnerships and end-to-end services contributed to bookings of $4.2-billion in the quarter and $16.4-billion, or 114 per cent of revenue, over the last 12 months. CGI’s outcome-based offerings, particularly those focused on generating cost savings and accelerating modernization — including through AI — continue to resonate with clients. Our robust balance sheet, further strengthened in the quarter by the operational and delivery excellence of our team, enables us to continue driving our build-and-buy profitable growth strategy.”

Tse gave his breakdown on the quarter.

“CGI reported solid in-line FQ1 (CQ4) results,” he said. “We estimate organic growth was around 4%, positive in an uncertain macro backdrop. More importantly, we continue to believe the Company is increasingly well positioned for when the enterprise spending environment broadens. In our view, that positioning combined with a path to growing operating leverage continues to support our view that such outlook is not fully priced into the stock.”

In a research update to clients January 31 entitled “Low Drama – Steady Execution”,  Tse maintained his “Outperform” rating and one-year price target of (C) $175.00 on CGI Group.

The analyst thinks CGI will post EBITDA of (C) $3.01-billion on revenue of $14.9-billion in fiscal 2024. In fiscal 2025, he thinks the company will deliver EBITDA of $3.18-billion on a topline of $15.5-billion.

“Bottom line, despite the cautious enterprise spend backdrop, we continue to think CGI will be a relative outperformer given the aforementioned combined with defensive attributes (e.g., strong recurring FCF generation – FCF yield of 6.3%),” the analyst concluded