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Covered by Stratosphere

Enabling a Digital World

CGI Inc. ("CGI") is an international information technology ("IT") consulting, outsourcing, and system integration company based in Montreal, Canada. The company has been operating and consistently expanding its operations since 1976. 

Today, CGI is one of the most well-known IT consulting firms, working on large transformation and modernization projects with the US government, large multinational corporations, and other global organizations. 

CGI differentiates itself from competitors by specializing in IT consulting, building its own intellectual property for use in outsourcing and consulting engagements, and partnering with world-class technology firms to strengthen its service offering to clients. 

While the company seeks to modernize the world and make business processes more efficient, CGI management works hard to acquire companies at a fair price to expand its business capabilities and global reach. This idea is the foundation of the four-pillar growth strategy, as well as the "Build and Buy" model - pursue tuck-in acquisitions that will lead to organic growth down the line.

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Balance Sheet

Adrian Iwanicki


Adrian Iwanicki

Equity Analyst

Investment Thesis

  1. CGI is a global IT consulting, outsourcing, and system integration firm with large global office and employee networks. The company has over 40 years of constantly improving experience in the field that it uses to empower, transform, and propel its clients towards success in their niche.

  2. CGI leverages long-term contracts, strong brand reputation, global presence and proximity to its clients, a vast partnership ecosystem, and intellectual property developed in-house to deliver value to clients through consulting and outsourcing engagements.

  3. The company's commitment to its four-pillar strategy that encompasses the Build and Buy model should lead CGI to double its business within five to seven years, in line with management’s plans. CGI seeks organic and inorganic growth opportunities to expand its global reach, enhance its value proposition, and capture more recurring revenues while it goes out to hunt for new clients and new business. 

  4. The business faces several risks: (1) client concentration as the US government makes up almost 15% of revenues (2) acquisition risks inherent in the Build and Buy model (3) cyclical revenue profile and (4) saturated competitive market. 

  5. CGI is expected to see more growth over the next several years as it aims to double its business in at least five years. Pandemic-induced digitalization efforts, a pick-up in spending as corporations recover from the broad global recession, verticals in blockchain, space, auto automation, and many others, and prudent capital allocation practices and fairer technology valuations produce opportunities for CGI to tap into new frontiers, expand its business, and boost shareholder value.

Key Company Metrics

A set of metrics we constantly keep updated to monitor the investment thesis.

Competitive Advantages

Punctuality Wins

BCG estimates around 50% of organizational change projects are not delivered on time, and 75% of large transformational programs do not achieve all their objectives. CGI's main competitive advantage stems from its long history of delivering 95% of customer contracts on time and on budget, well above BCG's estimates of industry averages.

CGI's strong reputation since 1976 allows it to win outsourcing contracts with clients that are typically five to ten years in length. CGI captures a recurring revenue stream while customers reap the benefits from CGI's wide consultant base and proven expertise and frameworks to streamline business processes and IT modernization.

According to CGI, the company extends, renews, or adds on to existing contracts with customers more often than not (between 60 - 75%). Management attributes CGI's success to strong core principles outlined in CGI's Management Foundation, the company’s set of formal guiding principles and controls to provide best-in-class IT services and practices.

Home Turf Advantage

CGI serves over 5,500 E2E clients around the globe across 17 industry sectors. The company operates from 400 locations scattered around the world to maintain close proximity with its partners and clients.

CGI pulls a few benefits from its proximity model - CGI learns about variations and nuances of doing business in different regions through its diverse client base, it can pull upon learnings to create more adaptive intellectual property, models, and frameworks for its global network, and it allows CGI to remain close to its partners to provide the best possible services for its clients.

CGI's president and CEO, George Schindler, alluded to the importance of the proximity model by mentioning that it is not going anywhere, despite the push for work-from-home and hybrid work models. Customers will ultimately benefit from

CGI's growing reach around the world on clients' home turf unlocks several key resources. Learning from a wide range of clients across geographies with differing business practices and regulatory environments keeps CGI consultants on their feet. As the company's collective knowledge base grows, it can implement its learnings in an agile manner to other in-place contractual agreements.

Partnership Ecosystem

CGI taps a wide partner ecosystem to help deliver a world-class consulting and outsourcing experience for all its clients. The company has leveraged its global reach to establish relationships with AWS, Google, Microsoft, Salesforce, ServiceNow, SAP, and over 140 others.

CGI uses a "partner-agnostic approach" to implement solutions that best suit the client and opportunity at hand. This partnership ecosystem allows CGI to have several advantages over competitors - it can collaborate with cloud providers, automation specialists, and other technology providers to understand what’s the next "big thing" in the world of technology, learn about it before it hits the mainstream market, and begin to implement its new processes into its consulting engagements and outsourcing services to ensure clients receive the latest-and-greatest solutions for their business to thrive.

Opportunities Ahead

  • In 2021, CGI met with 1,700 new and existing client executives across every geography and industry in which the company operates. The primary finding was that optimization of business operations is the number one priority, with culture and IT modernization services sought to address inefficient and ineffective processes. CGI's recent financials portray these results - demand for new digital and modernization projects skyrocketed, raising bookings substantially vs. 2021. CGI's book-to-bill ratio (booked contracts versus recognized revenues) is in record territory relative to the last five years.

  • Blockchain is one area in which CGI has already dipped its toes and it sees room for more growth. CGI serves the trade, government, utilities, identity, energy, and financial services sectors to use the power of blockchain technology to reduce risk by eliminating fraud, increase operational efficiencies, and enhance security and trust.

  • CGI is also tapping into other verticals, such as manufacturing automation. In Germany, CGI has partnered with a top auto manufacturer on a robotic automation initiative as a response to nationwide shutdowns. CGI is seeking to implement smart factory automation solutions to enable massive cost savings and operational efficiencies to this manufacturer.

  • You may need to grab a telescope to see this opportunity – CGI is looking to conquer space. A project with the European Space Agency ("ESA") has kicked off to develop a service that uses space technologies to map and monitor wildfires and their impact on the planet. CGI and the ESA will utilize technological advances in Earth observation, machine learning, and cloud computing to develop a life-changing concept that will benefit all of humanity.

  • Shareholders can rest assured there is a management team in place that seeks opportunities to invest shareholder capital in the most effective way possible. CGI has made it abundantly clear that it seeks to acquire businesses as part of its Build and Buy model only when valuations are attractive. In a time of heightened asset valuations, it is important that management maintains prudence to engage only in accretive acquisitions such that the plan to double the size of the company within 5 - 7 years is not hindered.


Client Concentration

CGI serves the US government to a large extent with 10 - 20% of revenues derived from the US federal government and its countless constituents. There may be significant adverse revenue impact if the US government does not renew, or cancels its contracts with CGI in favour of another consulting firm, or if there are cuts to its budget for CGI-related consulting services.

Double-Edged Sword

CGI's Build and Buy model and the company in its entirety rely heavily on acquisitions to fuel growth. The absence of fairly priced target companies and adequate strategic targets could result in underwhelming growth and stagnation. CGI also runs the risk of choosing a poor strategic partner or acquisition target that results in lacklustre accretion (and potentially profit dilution), weak or longer-than-expected realized synergies, and inadequate culture fit with the current CGI environment.

Cyclical Revenue Profile

Although CGI is generally viewed as a sticky and stable compounder, its revenue profile is subject to substantial swings during booms and busts. In times of economic hardship, many companies slash digital transformation and modernization budgets, directly and significantly impacting CGI. These large swings are likely to result in soured investor sentiment given the perceived speed of corporate consulting spend holdback.

Saturated Competitive Market

The consulting industry is saturated with a few top players making up the majority of market share in the industry. The "Big Four" accounting firms, McKinsey, Boston Consulting Group, Accenture, Microsoft, and a few others made up almost 60% of the market.

Their global reach, reputation, ability to attract top talent, and technological capacities enable them to win contract after contract with the world's largest companies. Although CGI has plenty of room to grow, we believe there is a ceiling to its growth story unless it taps verticals outside the realm of these large incumbents.

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