CGI Inc. (TSX:GIB.A) is a leading Canadian IT consulting company founded in 1976. Since that point, the business has expanded globally and scored a series of ginormous government contracts. The business also has a strong portfolio of tech products, specifically in the artificial intelligence space.
Diverse business model
The company specializes in information technology and consulting. Its main services include Business Consulting, Systems Integration, Managed IT, Application, Infrastructure and business processes. All these services are tied together via its three-step model, which helps clients to “Build,” “Execute” and “Operate.”
Its clients are diversified across many industries, from fintech to manufacturing and logistics.
One of its notable fintech clients is PAYONE, a European mobile payment provider that facilitates over 3.8 billion transactions per year for over a quarter of a million customers. CGI helped it to build a private cloud infrastructure in order to enable faster innovation of new cloud applications.
Its other financial offerings include banking as a service, having worked with 15 of the top 20 major banks.
Earlier this year, the business expanded its partnership with the National Bank of Canada. CGI has acquired the intellectual property of the bank’s internal financial planning solution to enhance its Wealth360 Digital Wealth platform.
In the transport industry, CGI scored a five-year agreement with Germany’s Airport Frankfurt (owned by Fraport (XTER:FRA, Financial)). The business plans to help migrate the airport's applications to the cloud as part of a strategic realignment.
These examples show that CGI is massively diversified and not reliant on one industry for its success.
$1 billion AI investment
In July, CGI announced plans to invest a staggering $1 billion into artificial intelligence. This will go toward enhancing its offerings, such as workshops related to AI, framework creation and even AI Model training.
Part of its investment will also go toward its PulseAI platform, which is a “hyper automation” decision engine. Its primary applications include invoice automation, loan reconciliation and sentiment analysis, in addition to customer behavior models and, of course, conversational AI.
The platform includes over 35 pre-trained AI models, which deliver results at a 90% accuracy level, according to the business. Its PulseAI Learner platform adds the ability to train AI/ML models, while its pre-built connectors enable AI to be run on a business' own data.
Solid financials
CGI reported solid financial results for its third quarter of fiscal 2023. Revenue of $3.62 billion rose by 11% year over year, driven by solid revenue growth in the U.K. and Australian markets, which increased by 15% year over year. Further, sales in Asia Pacific rose by 10%, followed by Southern Europe, which grew revenue by 10% year over year.
By industry, its largest segment, Government, reported 11% year-over-year growth on a foreign exchange neutral basis.
On Aug. 30, CGI announced an expansion of its multiyear contract with U.S. Citizenship and Immigration Services. This involves transforming its immigration benefits claim process to a fully automated service. The potential value of this deal is a staggering $159 million.
CGI has a solid suite of 175 intellectual property solutions, which it offers to clients. This is a lucrative part of the business and contributed to 21% of total revenue of 85 million Canadian dollars ($65 million), up 12.4% year over year. Again the government led the charge on this, up 19% year over year, followed by utilities, up 14%, and health care, up 9%.
Overall contract wins (bookings) for the quarter were CA$4.4 billion, up a solid 30% year over year. Its managed services drove a large portion of this, contributing to 57% of total bookings.
Margins and balance sheet
Moving on to profitability, CGI reported earnings before taxes of $559 million, up 14.3% year over year. Its adjusted Ebit was 12.5% higher year over year at $584.8 million.
As a result, its diluted earnings per share came in at $1.75, 15.9% higher than the prior-year quarter. This is fairly good given the company increased its number of consultants and professionals to a staggering 91,500, up 3,000 people year over year.
Cash from operations was $1.48 billion, which contributed to 13.8% of revenue.
Moving on to the balance sheet, the company reported long-term debt of $3.77 billion, though its cash position was a solid $1.5 billion.
Valuation
CGI trades at a price-sales ratio of 2.33, which looks to be close to historic levels, while its forward price-earnings ratio is 20.
The GF Value Line indicates a value of CA$133 per share based on historical ratios, past financial performance and analysts' future earnings projections. Thus, the stock appears to be fairly valued at the time of writing.
Final thoughts
CGI is a leading IT consultancy that has a strong foothold in government contracts. The business has continued to grow its top line, while also boosting its profitability and headcount. The company is fairly valued at the time of writing and, therefore, could be a great long-term investment.
