UPDATE: Paradigm Capital Downgrades CGI Group to Hold, Raises PT
In a research note published earlier today, Paradigm Capital Inc. downgraded its rating for CGI Group Inc. (NYSE: GIB) from Buy to Hold, but slightly raised its price target from $24.00 to $25.00, related to CGI's recent announcement of its intention to acquire Logica plc.
Paradigm Capital went on to say “Overall, we view this announcement as being transformational for CGI, which significantly increases its geographical reach and scale. At the same time, we believe there are potential challenges associated with Logica, in particular the lower‐margin profile associated with European IT services vendors, the fact this is a relatively new geographic area for CGI (i.e., execution risk), along with the current macro uncertainty in the region. Based on our initial assessment, we believe the combined entity could generate earnings of ~$2.50/sh in FY13 (ending September 2013). At 8x EV/EBITDA, which his Accenture's (ACN–N, NR) current trading multiple, we derive a pro forma value of $27.50 for CGI. However, we feel a discount (~10%) is warranted given the uncertainty about whether CGI will be successful in this bid (Logica is already trading above the takeover bid).”
CGI Group Inc. closed yesterday at $23.95.
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