CGI Inc.

CGI Inc. (TSX: GIB.A) is a Canada-based IT-services provider with an embedded position in North America and Europe. CGI offers a broad portfolio of services such as consulting, systems integration, application maintenance, and business process services (BPS).

Why Should Investors Book Profit?

• Poor liquidity: At the end of Q3FY21, the company reported its quick ratio and current ratio of 0.83x and 1.09x, respectively, lower than the industry median of 1.73x and 1.77x, respectively. The above indicates that the company is struggling to meet its short-term liabilities through its current assets.

• Weak debt-protection metrics: At the end of Q3FY21, the group reported its net debt to EBITDA of 4.72x, lower than the industry median of 3.89x. A higher net debt to EBITDA ratio indicates a weak debt protection ability of the firm.
  

• Extended cash cycle days: The group reported a higher cash conversion time of 72 days, as compared to the industry median of 27.6 days. A larger cash conversion day indicates lower operational efficiency and might hinder the overall performance of the firm.

Valuation Methodology (Illustrative): Price to CF based methodology. 

Stock Recommendation:

The stock of GIB.A failed to close above its crucial support levels of 50-days and 100-days simple moving average, indicating a weakness in the daily price chart. The company also reported a higher D/E ratio of 0.62x in Q3FY21, higher than the industry median of 0.44x, which might drag the company’s financial flexibility. We have valued the stock using the Price to CF based relative valuation method and have arrived at a target downside of double-digit (in percentage terms). For the said purposes, we have considered peers like Enghouse Systems Ltd, F5 Networks Inc etc. Hence, we recommend a ‘SELL’ rating on the stock of GIB.A at the last closing price of CAD 112.29 on November 04, 2021.

One-Year Technical Price Chart (as on November 04, 2021). Analysis by Kalkine Group 

Allied Properties Real Estate Investment Trust

Allied Properties Real Estate Investment Trust (TSX: AP.UN) is a real estate investment trust engaged in the development, management, and ownership of primarily urban office environments across Canada's major cities. 

Key Updates:

• Rise in total-debt: In the recent quarters, the company reported a constant surge in total debt, which remains as key concern as it hinders the overall financial flexibility of the firm. Moreover, a higher debt component leads to higher interest costs. Notably, at the end of Q3FY21, the group reported its total debt of CAD 3,445 million, which is highest in the last five quarters.       

• Constant decline in cash balance: In the recent quarters, the company constantly reported a decline in its cash balance, which might pose a threat to the company’s working capital. Notably, the company posted its cash balance of CAD 40 million, which is the lowest during the last five quarters.               

• Poor debt-protection metrics: At the end of Q3FY21, the group reported its net debt to EBITDA of 41.37x, lower than the industry median of 24.28x. A higher net debt to EBITDA ratio indicates a weak debt protection ability of the firm.
  

• Weak margin profile: The company reported a lower profitability margin in Q3FY21 as compared to the peers. Notably, gross margin and EBITDA margin were recorded at 59.5% and 55%, respectively, lower than the industry median of 68.6% and 59.3%, respectively. Moreover, the company’s operating margin also stood lower at 21.3% in Q3FY21, as compared to the industry median of 29%. A lower profitability margin denotes weak operational efficiencies.
  

Valuation Methodology (Illustrative): EV to Sales based methodology. 

Stock Recommendation:

In 9MFY21, the company posted a slide in its cash from operations of CAD 153.605 million, as compared to CAD 290.503 million in pcp, due to decline in the net profit. Moreover, on a daily chart, the stock of AP.UN is trading near the upper band of its 20-days Bollinger band, which indicates a possible correction in the coming trading sessions. Again, the RSI of the stock is at overbought zone of 67.92, which also indicates technical weakness in the stock price. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a target downside of double-digit (in percentage terms). For the said purposes, we have considered peers like Killam Apartment REIT, Killam Apartment REIT etc. Hence, we recommend a ‘SELL’ rating on the stock of AP.UN at the last traded price of CAD 44.17 on November 04, 2021.

One-Year Technical Price Chart (as on November 04, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.