Hi Sili,
I good friend pointed out to me a an article on CGI dated November 9, 1998. I don't know how to link the message to the article so I will write it out for everyone.
Analysts differ on CGI's current merits by Keith Woolhouse of the Ottawa Citizen.
These are puzzling times for CGI Group Inc., the Montreal company which has spread it tentacles halfway around the world to become the 6th largest information services technology company in North America.
Last week when it publicized the signing of an outsourcing agreement with PeopleSoft Canada, it also learned that Groome Capital brokerage services had issued a client advisory saying it felt CGI (GIB.A/MTL) was overrated.
Groome's thumbs-down knocked 95 cents of CGI's share price, and it was a contributory factor in driving down the company's stock to a 52-week low of $16.65.
Groome Capital's technical analyst Gary Koverko recommended on Oct. 13, that investors should "avoid CGI and sell into a rally up to $20." CGI fell 4.86 percent, a testimony, if one is needed, to the influence of such reports.
The, on Oct. 29, Groome Capital analyst Fadi Chamuon issued a "hold" recommendation, reasoning that CGI was "slightly overvalued."
It is hard to believe that all this escaped CGI's attention. But it did, assures the company's investor and media relations officer Ronald White.
"By the sound of it it seems to me these reports are based on technical analyses of stock price movements, and they're not related to an analysis of the company," said Mr. White.
"It sounds to me that these are day-to-day recommendations, like, 'lets's see the pattern, which way the stocks seems to be trading,' and based on this trend one assumes that it may go up a bit or it may go down a bit and you may buy on short-term recommendations."
"Generally, the market is quite confident about CGI. We're certainly quite confident, because things are going very well."
There was no doubt that the news delivered to Mr. White left him perplexed, particularly in light of two reports in October from Merrill Lynch and Scotia Capital Markets, both of which recommended CGI as a "strong buy."
Merrill Lynch's senior technology analyst Alex Baluta called CGI one of the "top tier players worldwide." In initiating coverage on the company he said that while recent volatility within the industry was affecting short-term multiples, he saw CGI's long-term fundamentals remaining strong.
Ralph Garcea of Scotia Capital Markets forecast a one-year target price of $35 for CGI shares and said the company was his "top pick in these volatile markets."
In discussing the merits of CGI it is impossible to avoid mention of the company's $6.5 billion backlog in orders.
"These are guaranteed, signed contracts no matter which way the economy goes, those contracts are here to stay," said Mr. White.
The bulk of those contracts are with Bell Sygma, th IT arm of Bell Canada, which CGI secured as part of its acquisition of winning the Bell Canada outsourcing contract.
The beauty of outsourcing is that it weathers most economic downturns.
"It has found its most stable growth in times of recession, consolidation and deregulation," said mr. Garcea. "In competitive and recessionary environments, an effective IT strategy is looked upon to develop efficiencies."
Mr. Baluta also picks up on this point.
"Outsourcing no represents 75% of CGI's total revenue. While parts of the IT services sector may undergo economic and budget-related slowdown in growth, outsourcing should prove to be a stable growth segment due to its proven cost efficiency."
Mr. Garcea also acknowledges outsourceing as a valuable stream of revenue.
"Partnerships established through outsourcing contracts lead to predictable revenue streams and more stable margins," he said.
That spells good news for CGI and its agreement with PeopleSoft.
"We're quite pleased with this agreement," said Mr. White. "We are the first in our industry in Canada to sign this type of agreement with PeopleSoft."
As in most such agreements, there is no dollar value attached to it. But, in essence, CGI and PeopleSoft will be working hand-in-hand.
"We're going to partner together. When a client buys PeopleSoft software package for the management of its major functions, if the company is looking to outsource its system on day-to-day basis, we will be preferred partner for the project," said Mr. White.
"In essence, this agreement is a gateway for us with PeopleSoft Inc."
PeopleSoft in not alone in selling ERP (enterprise resource planning) systems that allows companies to manage their primary business functions such as human resources, accounting and payroll services.
SAP Canada works the same field and CGI also has a working arrangement with them.
The option for many companies these days is to buy an off-the-shelf ERP product from a company such as PeopleSoft, but work with a company such as CGI to implement it.
"The PeopleSoft deal gives us a huge jump on our competitors," said Mr. White.
CGI's growth in the past 6 months has been little short of startling, although its bouncy share price, down 51% since July, does not reflect this.
Shares peaked at $34.25 on July 2, and although they've recently clawed back some of their loss, they're still well of that mid-summer high.
An excessively high price-to-earnings (P/E) ratio, as much as the market's downturn, was for the decline. Last year, the P/E was frightening 188 times revenue.
Its estimate for fiscal '98, according to Mr. Baluta, is 72, still well over the industry's average. Mr. Garcea has it at 58.
For fiscal '99, Mr. Baluta estimates the a P/E of 36 on net income of $68.9 million, and Mr. Garcea is calling for a ratio of 27 on net income of $91.27 million.
"Yes, the P/E ratio was somewhat on the high side, but we like to remind people that it is compensated by the fact that CGI is a high-growth company," said Mr. White.
Mr. Garcea is clearly more bullish on CGI's prospects for the next fiscal year, although the analysts are on the same trace for fiscal '98.
Mr. Baluta has forecast earning of $31.3 million, while Mr. Garcea has estimated $31.1 million.
CGI's growth is shown by the company payroll that has doubled since April. The company has 8,000 staffers.
Mr. White confirmed rumours that CGI is on the acquisition trail.
"Yes, we're looking very hard for an acquisition in the United States," he said. "We can't say more at this time, but it is very much part of our plans."
There is no question that CGI, having leapt ahead of its Canadian rivals, needs a greater U.S. presence to be able to challenge the biggies within the industry.
EDS Systems Corp. is the unquestioned leader. But there's a cluster of companies, including CGI Group, behind them.
They include MCI-Systemhouse, IBM Global Services, Computer Sciences Corp., and Affiliated Computers.
CGI will deliver its annual report Dec. 2 for the current fiscal year ending Sept. 30.
Mr. White wasn't giving anything away for the final figure, but he did say, "The future is looking very good...very good."
"We're moving forward and we are continuing to bid on several large systems integration and outsourcing contracts. We are confident with the analysts' forecast."
Tom...
|
