Recent Analysis Recent Update Text as of 13DEC13
. La Caisse de depot et placement du Quebec announced that it will rebalance its
investment portfolio by selling 9.96M CGI shares (La Caisse will remain a large
holder ~18.7% post this transaction). As part of the transaction, CGI will
purchase 25% of the shares (~2.49M) at a price of $40.15/share, representing a
buyback of $100M.
. Our view is that the repurchase of a large block of shares is consistent with
CGI's track record in continuing to strategically repurchase its own shares. The
repurchase of the 2.49M shares by CGI is expected to close on or about Nov. 29,
2013 and will be taken into account under the firm's current NCIB (~20.7M share
annual aggregate limit by Feb. 10, 2014) which will be ~15.5% completed after
the transaction. Our estimates have been updated to reflect the impact of the
share buyback.
. We believe that in the near term, CGI will stay focused on reducing financial
leverage. Our expectation is that starting in F2015E the firm is likely to
utilize FCF to fund a variety of shareholder value initiatives including: (1)
share repurchases, (2) accretive organic projects, and (3) tuck-under and larger
strategic acquisitions (near-term tuck-under transactions are a possibility in
F14).
. In our view, CGI is a core holding, and we view a number of catalysts for the
stock including margin improvement opportunities at Logica, investment of FCF
into various growth opportunities and further growth in the US market through
sale of CGI's IP-based software solutions.
Paul Steep, MBA (Scotia Capital Inc. - Canada)
paul.steep@scotiabank.com / (416) 945-4310