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CGI Beats Estimates as Logica Deal Outshines Obamacare

Nov. 14 (Bloomberg) -- CGI Group Inc., the information-technology company that has come under scrutiny for its work on the Obamacare health exchange, reported quarterly profit that beat analysts’ estimates, helped by its purchase of Logica Plc.

Excluding one-time items, fiscal fourth-quarter earnings were 67 Canadian cents (64 cents) a share, the Montreal-based company said today in a statement. Analysts had estimated 61 cents on average, according to data compiled by Bloomberg.

CGI gained renown in the U.S. for its role developing the federal government’s health-insurance exchange, a system that has suffered software snags and website crashes. That took a toll on the company’s stock last month, prompting investors to complain it had become a “scapegoat.” Still, the contract only accounts for a small fraction of the company’s revenue and an influx of contracts from its merger with Logica, a British technology consulting firm, have fueled profit and sales.

“The restructuring is essentially complete and our attention is now focused on accelerating the final transformational phase of our integration plan,” Chief Executive Officer Michael Roach said on a conference call today with analysts. The integration should be wrapped up in two years, ahead of the original three-year schedule, he said.

Stock Jumps

The shares climbed 4.3 percent to C$39.24 at the close in Toronto, the biggest gain since September. The stock has gained 71 percent this year.

CGI’s “cash flow is strong even after restructuring charges,” Kris Thompson, an analyst at National Bank Financial in Toronto, said in a note today. “Management is executing well beyond expectations and better than peers.”

CGI is now Canada’s biggest technology company, lifted by a run of acquisitions, including the 1.7 billion-pound ($2.7 billion) purchase of Logica in 2012. Revenue climbed to C$2.46 billion last quarter from C$1.61 billion a year earlier.

Snags on the U.S. health-care site -- a key part of President Barack Obama’s 2010 Affordable Care Act -- have threatened to dent CGI’s reputation. Still, the Obamacare contract is valued at about C$290 million, or less than 3 percent of CGI’s annual sales of about C$10 billion, estimates TD Securities Inc. analyst Scott Penner.

On the conference call today, Roach urged investors to focus on congressional testimony into the website’s problems, rather than media reports.

The Obamacare website is “not a simple one, but rather a very complex integrated technology platform,” he said. CGI will continue to work with the U.S. government to “focus on a successful outcome,” Roach said.

“In the fullness of time, our role and responsibility in this initiative will become clearer,” he said.

CGI has made more than 20 acquisitions in the past decade, aiming to challenge companies such as International Business Machines Corp. The company was created in 1976 by billionaire Serge Godin. CGI now has about 69,000 employees and is the world’s fifth-largest information-technology services company, according to Jefferies LLC.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; David Risser at drisser@bloomberg.net

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