CGI keen to ‘pull the trigger’ on another acquisition

CGI Group Inc. remains keen to "pull the trigger" on another acquisition and has the financial resources to do so, says chief executive officer Michael Roach.

"With the cash generation now returning to our more traditional levels we're in good shape financially to execute another transaction," Mr. Roach said on a conference call Wednesday to discuss third-quarter earnings.

The Montreal-based information technology services company posted net earnings of $225.1-million or 71 cents per share in the third quarter, compared with $178.2-million or 56 cents in the year-earlier period.

Excluding one-time items, net profit was 72 cents per share, slightly below the consensus analysts' estimate of 73 cents.

Revenue rose 4 per cent in the quarter to $2.7-billion.

CGI continues to reduce its net debt load – it stood at $2.4-billion at the end of June – and is making strides in the integration of British-based IT provider Logica PLC, freeing up cash and making an acquisition more feasible, Mr. Roach said.

"There are opportunities out there and we would pull the trigger if we found the right acquisition here at the right time and at the right price," he said.

Cash flow from operations in the third quarter was $346-million, "which should allay investor concerns regarding the cash production ability of Logica," Desjardins Securities analyst Maher Yaghi said in a research note Wednesday.

Mr. Roach said on the call that existing operations in the U.S. continue to present problems at the federal level because of ongoing delays in procurement decisions.

"Unfortunately, all the players here are being impacted by the business moving to the right and it's hard to know when that will turn around," he said.

There could be progress later in the year as the federal government unlocks unallocated funds, he added.

CGI lost a contract on the U.S. government's health-care reform website after the problem-plagued launch of Obamacare last year.

The company has been trying to "box in" within the first half of the year any financial impact resulting from problems on that file, said Mr. Roach.

U.S federal government work in the third quarter represented 13 per cent of total revenues, down slightly from 13.5 per cent in the year-earlier period.

Desjardins Securities' Mr. Yaghi said third-quarter revenue was in line with expectations and margins on earnings before interest (EBIT) were strong at 12.8 per cent, up from 11.3 per cent.

"The revenue number should improve as the company runs off low-margin contracts in Europe; however, the company will need to improve bookings to generate growth going forward."

The strong margin performance indicates a turnaround at Logica, he added.