The Montreal multinational IT consulting services company CGI suffered a decline in its stock market value to the threshold of $32 billion on Wednesday after the announcement of quarterly results which were affected by the slowdown in the economy.
In fact, despite net profit rising 14% to 414.5 million in the quarter ended September 30, it was CGI’s slowing revenue growth that caused some chills among investors.
CGI reported revenue up 8% annualized to $3.5 billion, while investors had expected a little more following a few quarters of growth above 10%.
Nevertheless, from the analysts’ point of view, investors in CGI shares can take comfort in seeing the sustained growth of its order book, which has crossed the value of 26 billion.
At Scotia Capital, Toronto analyst Divya Goyal points out in a note that despite quarterly results slightly below expectations, “CGI still has a solid order book as its clients prioritize their modernization and cost reduction projects. their management systems, instead of pursuing new establishments.”
At the firm Stifel Canada, Toronto analyst Suthan Sukumar likes that CGI has managed to maintain its order book and profit margins despite the slowdown in revenue growth.
“CGI’s profitability remains resilient, while the order book suggests healthy future growth. These remain the main considerations from the point of view of investors in CGI shares,” indicates Mr. Sukumar in a note sent to his clients.
At Desjardins Capital Markets, Montreal analyst Jérôme Dubreuil also notes that CGI’s order book is doing well, which should satisfy investors accustomed to sustained growth in its main results from one quarter to the next.
“Order book growth has remained strong and there are no signs of a slowdown yet. In my opinion, this demonstrates the good diversification of the clientele at CGI, particularly in the government market,” summarizes the analyst in a note to Desjardins client-investors.
CGI’s senior executives also tried to highlight the favorable business prospects resulting from an order book that was still full despite the slowdown in the economy.
“When I think about the discussions we are having with our clients, I am very enthusiastic about the outlook for the order book,” said CGI President and CEO George D. Schindler during the conference call with the analysts to discuss the company’s quarterly results.
Nevertheless, the president of CGI recognized that in a context of economic uncertainty, business clients could be hesitant about their investments in management IT.
“These companies know they must continue to invest in technology to achieve their goals. At the same time, as in previous downturns, they are monitoring their costs closely,” said George D. Schindler.
“This could mean that there is a slowdown in activities,” says analyst Daniel Chan at TD Securities.
At the end of October, CGI laid off 19 employees at its offices in Quebec. The ax fell at a time when the job market in the IT industry was tempering.
In its comments on quarterly results on Wednesday, CGI’s senior management mentioned that it had launched steps in September to reduce its costs, in particular by “adapting the size of its real estate portfolio and improving its operational efficiency.”
These abandonments resulted in special charges of $9 million during the quarter ended September 30. And additional costs of around 65 million are expected during the first and second quarters of fiscal 2024 at CGI.
