CGI Earnings: Broad-Based Strength as CGI’s Top Line and Bookings Grow at a Nice Clip

We are maintaining our CAD 130 fair value estimate for narrow-moat CGI GIB.A after the firm closed out the third quarter of fiscal 2023 with strong financial results, including double-digit top-line growth and strong bookings. We believe that as the macroeconomic pressures on CGI’s clients ease, they will increasingly restart/accelerate their digital transformation plans, a tailwind for an IT services company such as CGI. At the same time, we have been impressed with CGI’s ability to navigate the tough macro while maintaining robust financial results, a testament to the firm’s strong value proposition to its clients, in both good and bad times. With shares trading slightly down after the earnings report at CAD 133, we believe that the company’s shares are fairly valued.

CGI’s top line clocked in at CAD 3.62 billion, up 11% year over year (6% in constant currency terms). The firm saw strong growth across geographies and end markets. We view this broad-based strength as a good omen indicative of CGI’s ability to provide value to customers of different flavors.

CGI’s bookings, a forward-looking indicator, grew a whopping 29% year over year, underpinned by strong growth in demand from existing CGI clients. We believe CGI’s ability to expand business with existing clients is a result of both strong switching costs and intangible assets the firm has built up over time. Relatedly, the firm’s book-to-bill ratio (the higher the better) also expanded year over year to 121%, well above the firm’s five-year average and recent quarters.

On the margin front, CGI’s adjusted operating margin came in at 16.1%, up 10 basis points from last year. We believe CGI has an opportunity to expand margins over time by capturing more revenue via its intellectual property, improving its European profitability, and driving operating leverage through delivery via its global centers in low-cost geographies.