Merger of Royal & Bank of Mtl - more opportunity for CGI ?
I think so. If not this merger, then with some of the consolidations that will be taking place in the financial sector. Just my opinion but here's why.
Background factors
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- CGI has established itself as a major player in the Canadian financial industries and has been highly successful judging from the deals involving the CDSL acquisition, the contracts with the Co-Operators Group, credit unions, Desjardins partnership, PWGSC (manager of the federal government's accounting books) etc.
- CGI has set up two foreign banks so far to provide Interac services. Rather than go to a Canadian bank (i.e. competitor), foreign banks prefer to deal with an independent service provider such as CGI. There are very few other such independent providers - as far as I know, CGI is the only one with a coast-to-coast network in place
- banks want to get into the insurance business. CGI became a major player in insurance with the acquisition of Teleglobe's systems group (3rd largest supplier in North America)
- firms of all kinds moving to outsourcers for systems services - they can't keep up with the rapid changes in technology as well as a professional consulting, systems integration and outsourcing firm such as can
- the future in banking is electronic and in networking computers via telecommuncations. CGI partners include IBM, Bell Canada and Nortel - all the infrastructural bases are covered
- CGI's RFS for Windows NT retail banking business solution
Current factors due to proposed merger
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- the RB-BOM merger is driven by need to reduce costs. They will need to consolodate and integrate their systems; they want to get into more business opportunities where they can collect revenue on a transactional basis. They may need need a strong partner who can bring all things together from a computer, systems integration, networking and telecommunications perspective. CGI appears to be the only all-Canadian company able to pull this off . Once all done, the whole business could then be outsourced.
- some banking customers are reactiving negatively already to the proposed merger - they say they're going back to credit unions and smaller banks
Future factors
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The RB-BOM merger is just the first of many that will be taking place in Canada over the next few years; Canadian banks cannot face global competition without them. CGI's management has postioned the company such that CGI cannot help but be a major beneficiary to this secular trend in the management of financial resources.
My conclusions
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The opportunities for CGI over the next few years continue to appear to be truly remarkable.
Jean Monty did a great turnaround job at Nortel over the last couple of years and he will continue to succeed in his new job with parent BCE as president and CEO. One of those reasons is BCE's major stake in CGI, engineered recently by Monty.
I am learning the values of a simple investment strategy - put your money on excellent managers with vision, and reap the long-term rewards. |
