CGI Inc. (TSX: GIB.A) is an independent IT and business consulting firm which delivers an end-to-end portfolio of capabilities. The Group offers strategic IT and business consulting, business process services and intellectual property solutions.

The Company informed the appointment of Stephen S. Poloz and Mary Powell to the Company’s Board of Management.

The Group has recently received a 5-year contract from NetApp to deliver managed professional services leveraging data fabrics. The above collaboration is likely to provide specialized digital services and scalable end-to-end capabilities to healthcare, manufacturing, financial services and government clients.

Q2FY20 Financial Highlights: For the period ended March 31, 2020, CGI Inc. reported a stable set of numbers, wherein reported revenue stood at CAD 3,131.14 million, as compared to CAD 3,068.26 million in the previous corresponding period. The improvement was driven by a stellar growth from the management of IT and business functions, while a slide in systems integration and consulting income remained a drag. Total operating expenses stood at CAD 2,706.06 million, higher than CAD 2,641.47 million in the previous corresponding period, due to a substantial rise in acquisition-related and integration costs and net finance costs followed by a slight increase in costs of services. Net earnings, during the period, stood at CAD 314.84 million, as compared to CAD 318.28 million in pcp. Cash and cash equivalents and total assets stood at CAD 302.48 million and CAD 14,597.24 million, respectively at the end of Q2FY20.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected ~17% so far this year following sell off in the global equity markets on account of COVID 19 crisis. The group has a solid backlog of CAD 22.99 billion and bookings for the three months ended March 31, 2020 were CAD 2.8 billion representing a book-to-bill ratio of 88.9%. Solid backlogs along with high book to bill ratio provide greater visibility of revenue. U.S federal government is one of the key customers of the group and contributed ~13% to the group’s revenue, which is a key positive from stable revenue point of view. The Company operates through a diversified business model and generates its revenue from all the major geographies, which indicates a lower risk-factor from the business point of view. The Group enhanced its liquidity by CAD 1,764.7 million, through unsecured committed term loan credit facility. We have valued the stock using Price to CF based relative valuation approach and considered industry (Software & IT Services) median on NTM basis and arrived at a target price offering double-digit upside potential (in % terms).  Hence, we recommend a ‘Buy’ on the stock at the closing market price of CAD 89.49 as on June 12, 2020.

GIB.A Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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