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Morningstar | CGI's Work Means the Company Is Typically Well Embedded in Existing Clients

CGI is a Canada-based IT services provider with an embedded competitive position in North America and Europe. With more than CAD 22.5 billion in backlog, an average contract duration of six to seven years, and some of those contracts attached to clients that have been with the firm longer than 25 years, CGI has a solid operational foundation, in our opinion.Given the often mission-critical nature of work performed by CGI and its existing relationships, we think the firm benefits from high switching costs. A strong position in five industry verticals and government-related businesses is expected to underlie the company's long-term relevance in IT services. In addition, the firm's proximity operating model, build-and-buy growth strategy, and vendor independence differentiate it and support new and repeat business.While the firm has had some high-profile project hiccups in the past, we believe these are isolated and a superficial blemish on CGI's otherwise admirable record of providing 95% on-time and on-budget work. Therefore, we do not predict any lingering effect on the company's ability to attract new work; a healthy and consistent backlog and a book/bill of over 100% is evidence of this.The IT services market remains highly competitive, and vendor consolidation is expected to characterize the industry as clients increasingly look to simplify their organizational structure. However, we think CGI's acquisition of Logica in 2012 and the resulting growth in its global delivery model has better positioned the firm to meet these market pressures and compete on a global scale. We expect a blend of organic and inorganic growth in the future, given the company's build-and-buy growth strategy. We think CGI can expand its presence with existing clients as vendor consolidation continues. Furthermore, growing IT complexity is expected to support long-term demand for IT services as companies look to simplify and streamline their IT landscape. While a high degree of competition will moderate new business growth, we expect CGI to be an attractive partner as a result of its vertical expertise and embedded presence in North America and Europe.