BUSINESS

CGI Group stock hits new 52-week high; company looks to U.S. for acquisitions

07/31/2013 10:20 EDT | Updated 09/30/2013 05:12 EDT
MONTREAL - Information technology company CGI Group Inc. says it's on the lookout for potential U.S. acquisitions after reporting strong results Wednesday that sent its shares to their highest price in more than a year.

Shares in CGI Group (TSX:GIB.A) traded at $35.89, up $3.56, or 11 per cent on the Toronto Stock Exchange. The stock traded as high as $36.36, above the previous 52-week high of $33.11 and the highest in at least five years.

CEO Michael Roach said an acquisition in the United States would add to the company's earnings and believes the information technology market will continue to consolidate.

"It's a big, big market and while we're doing exceptionally well down there, we could do even better with a larger platform and a go-to market capability," Roach told financial analysts on a conference call.

Roach said CGI's U.S. operations are seeing significant growth and the company is involved in helping the U.S. government and some states implement health-care reform, commonly known as Obamacare.

"We're currently involved with nine states, building platforms for consumers to shop for, review and select and appropriate healthcare plan. In addition, we're building the federal facilitated marketplace platform to be used for consumers in the 26 states currently without their own exchanges," he said.

"Our U.S commercial pipeline has expanded by nearly 50 per cent, reflecting signs of a firming economy as companies begin to focus investments beyond cost control towards growth initiatives."

CGI Group has $2 billion worth of outstanding contract bids with the U.S. federal government, he said.

However, Roach said CGI Group is still focused on realizing all possible revenues and profits from its year-ago acquisition of U.K.-based Logica.

CGI has said the purchase of Logica last year has not only dramatically boosted its revenues, but also provided a strategic business unit that's a leader in the Asia-Pacific.

Before the $2.7-billion deal closed last August, CGI and Logica each relied on their home markets in North America and Europe respectively for 95 per cent of their business. Together, they have started to expand the relationship with clients in both geographies that operate internationally.

In its financial results reported Wednesday, CGI Group (TSX:GIB.A) said it earned a net profit of $178.2 million or 56 cents per share, up from $87.2 million or 33 cents per share in the same period last year.

The third quarter profit included integration costs of $53.5 million and a one-time tax benefit of $14.9 million. Before those costs, net earnings were $200.4 million, or 63 cents per diluted share, up from $93 million a year earlier.

Revenue was up 141 per cent to $2.57 billion from $1.06 billion as bookings, including new contract wins, extensions and renewals, rose 86 per cent to $2.8 billion. The company also said it generated $133.2 million in cash from operating activities during the quarter.

National Bank Financial analyst Kris Thompson said although CGI Group beat analysts' expectations, investors should expect some weakness in the company's fourth-quarter, which includes vacation season.

Thompson is increasing his share price target to $42, up from $40.

RBC Capital Markets analyst Paul Treiber called the results "solid" and said the company's core business is recovering. Treiber also said CGI Group's adjusted earnings of 63 cents per share are above analysts' expectations of 58 cents, which excludes integration expenses of $53 million.

Revenue of $2.57 billion exceeded expectations of $2.53 billion for the quarter, Treiber said in a research note.

Founded in 1976, CGI Group is the fifth largest independent information technology and business process services firm in the world and has about 69,000 employees worldwide.