Media coverage
Two very different views of yesterday's action following CGI's results. The Globe & Mail says investors were disappointed that CGI merely met analysts' expectations, while the Southam papers attribute it more to profit taking by retail investors.
Here's Southam's article from today's Ottawa Citizen.
August 6, 1998
CGI records another strong quarter
BY ANDY RIGA
MONTREAL -- Ho-hum -- revenue doubled, profit tripled. Just another average quarter for computer-consulting company CGI Group Inc.
Sales increased by 123 per cent to $158 million in the third quarter ended June 30, the Montreal-based firm said yesterday. Net earnings jumped 218 per cent to $7ú7 million.
"It's like a juggernaut, it's just an amazing company," said Richard Groome, president of Montreal brokerage firm Groome Capital. "You don't see that kind of growth every day, and the good thing is they're still gaining ground in terms of new contracts and new businesses."
But the rosy results and the bright prospects haven't been enough to save the company's stock from a battering on the markets. CGI is caught in a downdraft, as high-flying high-technology stocks get cut down by profit-taking investors, analysts said.
Yesterday, CGI's shares dropped $1ú35 to $28 on the Toronto Stock Exchange. Over the past five trading days, the value of its shares has fallen 16 per cent.
At $6 billion, CGI's order book is bulging, thanks in large part to a $4ú5billion, to-year outsourcing deal signed in May that will see CGI develop and maintain Bell Canada's internal computer systems. The huge backlog gives CGI "a lot more stability," said Josef Vejvoda, an analyst with Levesque Beaubien Geoffrion.
"If you have all this work that's ready to be done, as long as you can service it, the only real risk is managing the growth." And CGI chairman, chief executive and co-founder Serge Godin has over the years proven himself a master growth manager, Mr. Vejvoda said.
In a complicated deal Mr. Godin announced in May, CGI is acquiring two Bell subsidiaries, while Bell and parent BCE-Inc. are raising their CGI stake to 42 per cent. By cosying up to blue-chip BCE and adding BCE chief executive Jean Monty to its board, CGI has gained even more credibility, Mr. Vejvoda said.
With 7,500 employees in 22 countries, CGI is flourishing in the fast-growing business of helping organizations buy, install and maintain computer systems. It is expected to surpass $1 billion in annual revenue in 1999ú
"Any weakness in the stock (in recent days) is just basic profit-taking," Mr. Groome said. "Market conditions are tough." The tough times are something new for CGI stock, which has been zooming ever higher, resulting in three two-for-one splits over the past year.
"Whenever you have a (stock-market) correction, it's companies with high price-earnings ratios that get hit the hardest," and that often includes high-tech firms, Mr. Vejvoda said. "What isn't down in high tech right now?"
CGI stock "has languished (in recent days), but have any institutions gone out there with big blocks and sold off? Not really. The majority have been retail selling, smaller blocks," he added.
Because of its strong growth rates and its exceptionally high price-earnings ratio, CGI's stock will continue to be volatile, Mr. Groome said.
In the plunging stock market, investors are taking profits from high-tech stocks that have done well and putting the cash into more conservative stocks, he added.
Special to the Citizen
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