The results of the IT consulting firm CGI suggest the first signs of a slowdown, but its boss assures that the outlook remains favorable for the order book.
The Montreal company revealed on Wednesday a deceleration in the rate of growth of its revenues. In constant currency, its sales increased 2.2%. By comparison, that pace was 6.3% in June.
CGI’s order book, however, remains strong at 26.06 billion. Its contracts-to-billing ratio reaches 1.14 times. A threshold above one is generally considered an indicator of future growth.
“Yes, I am very enthusiastic about the outlook for the order book when I think about the discussions we have had with our customers,” assures the president and CEO, George D. Schindler, during a conference aimed at discuss the company’s quarterly results.
The executive acknowledged that companies appear ambivalent about investing in technology amid economic uncertainty. “They know they must continue to invest in technology to achieve their goals. At the same time, as in previous recessions, costs are being closely monitored. »
In another sign of moderation, CGI’s global workforce remained relatively stable at 91,500 employees. “This could mean that there is a slowdown in activities,” says analyst Daniel Chan of TD Securities.
At the end of October, CGI laid off 19 employees associated with its offices in Quebec. The ax has fallen at a time when the job market in the IT industry is tempering.
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”.
This resulted in charges of 9 million for the three months ended September 30. A charge of 65 million is planned for the following six-month period.
CGI employees are also less inclined to check whether the grass is greener elsewhere. “Our turnover rate is lower than the industry. It is even lower than the threshold before the pandemic. »
Compared to last year, CGI job offers fell by 68% in Canada for the months of July, August and September, according to a review by the firm RBC Capital Markets. The number of job postings is now 52% lower than pre-pandemic levels.
For the fourth quarter ended September 30, CGI reported results relatively close to financial analysts’ expectations.
Its net profit increased by 14.4% to 414.5 million. Adjusted diluted earnings per share reached $1.79.
Revenues, for their part, increased by 8% to 3.51 billion. Without accounting for currency conversion, the increase would be 2.2%.
Before the results were released, analysts expected adjusted earnings per share of $1.77 and revenue of $3.54 billion, according to data firm Refinitiv.
Even though revenue growth has decelerated, analyst Suthan Sukumar of Stifel GMP points out that the order book and margins are holding up. “CGI’s profitability is resilient, it is the most important factor driving the share price, in our view. The order book suggests healthy future growth. »
Analyst Jérôme Dubreuil, from Desjardins Capital Markets, also emphasizes that the order book is doing well, but he believes that investors will be more cautious, despite everything. “We wouldn’t be surprised to see pressure on the stock as the market focuses on quarter-over-quarter revenue growth. »
CGI shares were down $5.09, or 3.60 per cent, at $134.99 on the Toronto Stock Exchange around midday.
