An Old School, Big-Growth Tech

05/30/2013 9:00 am EST

Focus: STOCKS

This world leader in technology has a wide geographic base and is growing rapidly, writes John Deman of the Investment Reporter.

CGI Group (GIB) is the world's fifth-largest independent provider of information technology and business process services. After acquiring British firm Logica, CGI's yearly revenue jumped to over $10 billion.

CGI is doing a good job of integrating Logica. The company now expects to achieve yearly cost savings of $375 million, up from initial expectations of $300 million. Even better, it expects to complete the integration of Logica by September 30, 2014. That's one year ahead of schedule.

CGI will continue to earn record profits. The acquisition of Logica is only expected to raise its profitability.

In the year to September 30, 2013, it's expected to earn $2.02 a share. That's up by over a third from $1.50 a share last year. Then, in fiscal 2014 (which begins on October 1), CGI is expected to earn $2.55 a share. That's up by another 26%.

The company's better earnings are confirmed by its higher cash flow, which exceeded capital spending. CGI used its excess capital to help repay debt of more than $208 million. That's a good thing, because the acquisition of Logica saddled CGI with significant debt.

Subtract cash of $168 million from total debt of $3.098 billion and CGI has net debt of $2.93 billion. This works out to nearly 80% of its shareholders' equity of $3.683 billion. While this is high, at least it's going down.

CGI has achieved greater safety through diversification. Its 69,000 professionals provide services to thousands of customers, so the company is not at the mercy of just a few big customers. This reduces its risk. These customers operate in both the private and public sectors.

CGI also operates worldwide. Revenues are from the US (23.7%), the Nordic countries, Southern Europe and South America (20.6%), Canada (16.8%), France (including Luxembourg and Morocco, 12.9%), the United Kingdom (11.3%), Central and Eastern Europe (including Germany, the Netherlands, and Belgium, 10.2%), and Asia-Pacific (which includes Australia, India, the Philippines, and the Middle East, 4.5%).

This geographical diversification reduces CGI's dependence on any one country or region. It can at least partly offset weaker results in the recession-wracked Eurozone with stronger results from elsewhere, such as the US and Canada.

Buy CGI for long-term share price gains, provided you need no dividends.

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