Over the last few years, you have likely heard us heap praise on CGI Group, a significant core holding in the Cambridge portfolios. The management team is top-notch and the “ownership” culture established several decades ago is one we continually urge other companies to emulate.
Recently, CGI Group has come under intense scrutiny by the American press and politicians for its alleged role in the woeful introduction of the Affordable Care Act (a.k.a. Obamacare). I want to highlight this as an example of how building relationships and trust in a select few well-run businesses allowed us to take advantage of short-term volatility in the stock. CGI Group’s stock fell almost 10% from recent highs after it was mentioned as one of the companies related to the Obamacare troubles. This was puzzling to us since this company generates over $10 billion in revenues and this contract was worth less than $100 million over several years. Let’s chalk up the weakness to investor panic driven selling and fear created by the media.
Due to the drop in stock price, we were able to add to our already meaningful position at attractive levels. Additionally, we were pleasantly surprised last week when CGI Group reported a very solid quarter with specific strength in U.S. revenues and European margins. After speaking to the company, post-release of their results, we got affirmation that there would likely be little-to-no financial impact from the negative press.
The most rewarding part is our clients benefit from this volatility as do the 68,000 employees of CGI (74% of which are owners themselves), who had the opportunity to add to their stake during that time.
Click here to read Brandon’s comments, via Bloomberg.com, regarding this topic.