Scisys (SSY:250p), a supplier of bespoke software systems to the media, space, defence and commercial sectors, has received a knockout 254p-a-share cash bid this morning from CGI, a Canadian IT and business consulting group, that values the equity at £79m. The offer represents a premium of 24 per cent over the previous closing price and equates to a multiple of 18 times house broker FinnCap’s earnings per share estimate of 14p for the 2019 financial year after factoring in 15 per cent growth in this year’s pre-tax profits.
The recommended offer has the backing of directors who control 25 per cent of the issued share capital and exceeds the 230p target price I highlighted in my article a month ago when I last suggested buying the shares, at 204p (‘Scisys’ space division flying higher’, 14 May 2019). Longer-term followers who bought when I initiated coverage, at 102p, in the autumn of 2017 ('Tune into a media play', 11 October 2017), will have made a 149 per cent capital gain and banked useful dividends over the past 20 months, too. Shareholders will also receive the final dividend of 1.73p a share, which will be paid on 26 July.
It’s easy to see why CGI is interested in Scisys given the UK company’s commanding position in the space and defence markets. Scisys’ space division is absolutely flying. Having Brexit-proofed this operation by redomiciling the company to Dublin at the end of November, the company subsequently won €23.3m (£20m) of new contracts on European Space Agency (ESA)-funded projects between mid-December and the end of January.
Strategically, the acquisition will deepen CGI’s expertise in these two key markets, expand its geographic footprint in the UK and Germany, where CGI doesn’t currently have offices, and offer the combined business scope to win larger contracts with the Canadian group’s greater financial backing and scale. In the 2018 financial year, CGI posted group revenues of C$11.5bn, employing 77,000 staff across the Americas, Europe and Asia Pacific.
Of course, there is a remote possibility another bidder could come in with a higher offer. However, I feel that’s unlikely – the mid-market price of 250p is shy of the offer price, suggesting other investors concur with this view – so I am happy to recommend accepting the cash, given that my target price has been exceeded by more than 10 per cent. Accept.
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