Skip to main content

For companies that don’t pump oil or supply natural gas, 2022 was probably a tough year. Apart from energy, most S&P/TSX subindexes lost ground.

But some companies are thriving, despite the headwinds of inflation, rising interest rates, fractured supply chains and the looming possibility of a recession.

One of them is a low-profile Quebec-based company that many investors aren’t familiar with: CGI Group Inc., (GIB.A-T). If you haven’t looked at CGI, now is the time. It’s a classic example of one man’s dream growing from modest beginnings to a global giant.

CGI (the initials stand for Conseillers en gestion et informatique) was started by Serge Godin in Quebec City in 1976 (the head office is now in Montreal). He was just 27 years old at the time, and CGI only had two employees.

Today, CGI is one of the world’s largest information technology and business consulting firms. Mr. Godin remains the controlling shareholder, is an Officer of the Order of Canada and was inducted into the Canadian Business Hall of Fame in 2008.

The company’s approach from the outset has been to help clients achieve success, offer fulfilling career opportunities for employees and provide long-term growth for shareholders. In short, win-win.

It hasn’t been easy. IT was in its infancy at the time, and demand for CGI’s services evolved slowly. By 1986, a decade after it was founded, the company’s annual revenue was just $25-million.

At that point, CGI embarked on a business strategy that eventually made it an international giant. The company acquired rival BST Group Inc. To finance the deal, CGI went public, issuing 800,000 Class A shares at a price of $6.50.

As globalization took hold, CGI extended its operations beyond Canada. By 1996, annual revenue had grown to $122-million.

But CGI was just getting going. Over the next few years, the company made a series of key acquisitions that transformed it into a global powerhouse. They included:

  • A 1998 merger with Bell Sygma that led to the signing of the largest Canadian outsourcing contract of that time, nearly doubling the size of CGI.
  • A 2001 merger with IMRglobal Corp. to add Indian operations to the portfolio, providing clients with expanded global delivery options.
  • A 2004 merger with American Management Systems Inc. (AMS). This transaction doubled the size of CGI in the United States and tripled its presence in Europe.

By 2006, annual revenue was up to $3.5-billion.

In 2012, CGI made its largest acquisition to date, merging with the Anglo-Dutch business and technology services company Logica PLC. The acquisition increased the size of CGI’s staff from 31,000 to 68,000 and offered greater presence, service capabilities and expertise for clients across the Americas, Europe and Asia. This made CGI the world’s fifth-largest independent IT and business consulting services firm.

By the end of CGI’s 2016 fiscal year (which ends Sept. 30), CGI’s annual revenue had reached $10.7-billion.

The company continues to grow, with at least one major acquisition every year. Revenue in the 2022 fiscal year was $12.87-billion. The company now employs 90,000 people worldwide.

And CGI is still growing. First quarter results for the 2023 fiscal year were released on Feb. 1, and they beat estimates. Revenue was $3.45-billion, up 12.3 per cent on a constant-currency basis over the year before. Net earnings were $382.4-million ($1.60 per diluted share). On a per share basis, that was up 7.4 per cent over the same period of fiscal 2022.

The company reported bookings of $4.04-billion, for a book-to-bill ratio of 117 per cent. The order backlog is just over $25-billion, or 1.9 times annual revenue.

Chief executive officer George D. Schindler commented: “Our ongoing investments continued to deliver value for all of our stakeholders, notably in our strong positioning as a trusted partner for clients’ digitization priorities, which contributed to generating over $4-billion in bookings during the quarter, of which one-third were new business.”

The only significant negative about this stock is that it does not pay a dividend, despite CGI’s healthy bottom line. The directors prefer to use cash flow for more acquisitions, rather than distribute it to shareholders.

However, CGI does reinvest in its own shares. During the latest quarter, the company spent $10.3-million to repurchase and cancel just over 100,000 shares at an average cost of $102.81. CGI renewed its normal course issuer bid for up to 18.8 million Class A shares.

We originally recommended buying CGI in my Internet Wealth Builder newsletter in 2012 at $24.42. The stock closed Friday at $122.05. That’s an average annual growth rate of over 17 per cent.