Opinions
Robert Gill
CGI Group (A)
GIB.A-T
BUY
Apr 25, 2024
Stock price when the opinion was issued
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He can't explain the big drop today, but a 6% drop in this name is unusual. Chart shows what a good company it is. Operates in Canada, US, Europe, and India. Should be advantaged by near-shoring. Lots of US government customers, and that should play well with Trump 2.0.
Stable grower, well managed. Drawdown is probably a buyable opportunity.
DOGE has put the chill on companies with US government contracts. Stock's possibly fallen too much, as the company provides critical services. One of the best-run companies in Canada. Getting attractive. Before you buy, research how much US exposure it has. Long-term thesis is that everyone is looking to implement AI.
He'd like to have more clarity on government contracts, but this is why there are risks and rewards in investing.
Global operations; with Canada representing ~15% of revenue, US ~30%, 44-45% in Europe and UK. Outsourcing (~55% of the business) has long-term contracts, so that's defensive and not as cyclical. Consulting side tends to be more economically sensitive. Stock's pulled back ~17% from highs in February.
About 14% of revenue is from doing business with the US government. Risk from DOGE cuts, but CGI's contracts are for mission-critical services. Near-term business uncertainty may result in a softer backlog. But long term, IT services are essential to decrease costs and increase productivity. Increasing M&A activity. Trades around 17x PE. Strong balance sheet. Yield is 0.42%.
Family controlled. This whole sector of IT consulting has been for sale YTD. People want to own leading-edge tech, and this isn't it. US is its biggest geography and US government its biggest client base. Concerns of government belt-tightening didn't come to pass.
Pretty good company. Compounded total shareholder returns at double-digit pace over last 10 years, mostly in capital appreciation. Modest dividend. Steady eddy. Fairly low beta. Trading at 15x PE vs. 18x historically. Dip is buyable.
A near-shoring play involving contracts with the US government. Musk and the DOGE belt-tightening may have upset the apple cart. They also do a lot of business with the Canadian government and our banks, and PM Carney has been looking for efficiencies as well.
More steak, rather than having the sizzle of AI. So recent weakness could be just money flow. Can't argue with what it's done over decades, a good compounder. Not tempted, he'd just watch from the sidelines for now.
Every client situation is different. For example, do these investors have their income needs taken care of or are they close to the edge? So he'll just answer from a stock perspective.
Stock hasn't been performing well. Great for a very long time. Does a lot of business with the US government, and some of that could be in question right now. Broken technically, all of the MAs are moving lower. If he'd owned it, he'd have been stopped out a long time ago.
If something isn't rallying in the middle of a bull market, there's usually an issue. He'd rather own a more productive asset. The question is whether you trade to silver? He's very bullish on silver long term (for a decade, and we're only 18 months in). At some point, there will be a correction in the precious metals.
He'd trade from GIB.A to "something else", and for a seniors couple that would be a dividend grower. If you still want precious metals, look at one of the more conservative names such as AEM.
Business split between IT services and consulting (55% revenue) and systems integration (45%). Public and private. International revenue -- 30% US, 15% Canada, rest from Europe. Recurring revenues from long-term contracts. Investing to expand AI offerings.
Well run, good track record of operating and acquiring. Impressive allocation of capital. Profitability well above market, strong balance sheet. Small premium to the market, but better quality than market. No dividend, but the growth rate is there. Long-term hold.