Nuvei Corp

Nuvei Corp (TSX: NVEI) is a provider of payment technology solutions to merchants and partners in North America, Europe, The Asia Pacific and Latin America. The solutions provided by the company are mobile payments, online payments, and In-store payments.

Key Highlights

• Strong preliminary numbers: Recently, the company announced preliminary numbers, where they expect the revenue between USD 114 -118 million in Q4 2020, an increase of 40% compared to Q4 2019.For FY2020 Revenue would be between USD 373 - 377 million, an increase of more than 50% compared to FY 2019. Moreover, the operating profit would be between USD 16.5 - 19.5 million in Q4 2020, and between USD 61.4 - 64.4 million for the full year of 2020. 

• Gaining synergies: Recently, the company acquired Base Commerce, LLC, a leading provider of integrated payment solutions. We believe this acquisition would expand its product capabilities with a proprietary ACH processing platform, further diversifies its, enhances sponsor bank coverage, and enlarges the Company’s distribution network. 

• Integrating Smart2Pay: The group is integrating Smart2Pay, under its brand and platform. The Smart2Pay is a going forward APM microservice, which would enhance the company’s ability to identify and integrate with APMs worldwide. Furthermore, this would diversify the revenue mix across verticals and reduces the customers concentration. 

• Robust performance: The company is continuously showing a spirited performance across volumes, revenues, and EBITDA both on Year-over-Year basis as well as on sequential basis. In Q3 2020, the volumes grew 62% which reflected a healthy growth of revenue at 32% and Adjusted EBITDA at 59%, compared to the previous corresponding period. In the below matrix the volume is in billions of USD, while other data in in millions of USD.

Source: Company

• Event update: The company would release its fourth quarter and full year 2020 financial results before market open on Wednesday, March 10, 2021. 

Financial overview of Q3 2020 (in thousands of US dollars)

Source: Company

• In Q3 2020, the Company’s revenue increased by USD 22.8 million or 32% to USD 93.5 million, compared to USD 70.7 million in the previous corresponding period. The increase is due to total volume growth driven by the SafeCharge Transaction and organic growth.
• Operating profit stood at USD 15.1 million in Q3 2020, compared to a loss of USD 4.1 million in Q3 2019. The rise in operating profit was primarily due to higher revenues and lower SG&A expenses.
• The Company posted a net loss of USD 77.8 million, compared to USD 65.6 million. The losses increased primarily due to higher finance cost in the reported quarter.

Risks associated with investment

The company is in the Information technology sector; hence, the significant risk of technological change arises. Other risks are also there, such as acquiring new merchants and partners, consumer spending trends, evolving industry standards, intense competition, currency fluctuations etc. 

Stock recommendation

The company is continuously showing a spirited performance across the volumes, revenues, and EBITDA both on year-over-year basis as well as on sequential basis. In Q3 2020, the volumes grew 62%, which reflected a healthy growth of revenue at 32% and Adjusted EBITDA at 59% compared to the previous corresponding period. Moreover, we believe the recent acquisition would expand its product capabilities and enlarges the distribution network. Furthermore, the company shared its preliminary numbers where they expect healthy growth across revenue and operating profit, with an increased volume by 70% compared to FY2019, which is a key positive. On the valuation front, the stock is available at forward Price/Book multiple of 5.1x against the Industry (Software & Technology) median of 7.7x. Hence, considering the aforesaid rationale, we recommend a “Buy” rating in the stock at the closing price of CAD 61.3 on March 5, 2021.

1-Year Price Chart (as on March 5, 2021). Source: Refinitiv (Thomson Reuters)

BlackBerry Limited

BlackBerry Limited (TSX: BB) provides end-to-end secure software communication for organizations. The group provides endpoint management and protection to organizations, specializing in regulated industries like government, as well as embedded software to the automotive, medical, and industrial markets.

Key Highlights:

• Reduction in Total Debt: The company has managed to reduce its total debt in the recent past and posted total debt of USD 459 million in Q3FY21, representing a decline of 24.75% and 23.27% from Q2FY21 and Q1FY21, respectively. A reduction in the debt profile would lead to higher financial flexibility for the company. 

• Rising cyber threat would increase demand for security solution services: Due to the shift in trend, more of the employees are opting for work from home option and as per the recent research, the organizations are witnessing rising threats of cyber-attacks. Hence, to cope up with the rising threats, both public and private organizations are working together to meet cyber espionage groups to ensure robust security practices. We believe, with constant innovation and upgradation, the group is well poised to provide intelligent security software and services to the targeted organizations in the coming days.

• Upgradation of BlackBerry Radar ^® H2: Recently, the company has upgraded one of its product BlackBerry Radar ^® H2, which would provide cost-efficiency and securely improve the utilization of the trailers, containers, chassis and other remote assets, primarily for the transportation industry.

Q3FY21 Financial Highlights:

• BB announced its quarterly result, wherein the company posted revenue of USD 218 million, as compared to USD 267 million in the previous corresponding period (pcp). The decline was primarily attributable to a declining income from both Software and Services segments and Licensing and Other segments.

Q3FY21 Segment Highlights (Source: Company Report)

• Gross margin stood at USD 149 million, as compared to USD 199 million in Q3FY20. The decline was due to lower revenue.
• The quarter was marked by lower research and development costs (USD 53 million versus USD 66 million in pcp), and a slide in Selling, marketing and administration expenses (USD 83 million versus USD 129 million in pcp). However, total operating expense stood higher at USD 276 million as compared to USD 227 million in pcp, due to loss from debentures fair value adjustment of USD 95 million versus a profit of USD 20 million in Q3FY20.
• Cash and cash equivalents are recorded at USD 223 million, while total assets stood at USD 2,870 million.

Q3FY20 Income Statement Highlights (Source: Company Report)

Risks: The investment in the company is subject to various risks including difficulties in forecasting the company’s financial results and performance for future periods, particularly over longer periods, given changes in technology and the company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the company operates.

Valuation Methodology (Illustrative): EV to Sales based

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

During the quarter, AWS and BlackBerry collaborated with each other in order to enhance its innovation with a new intelligent vehicle data platform, BlackBerry IVY. Moreover, the group reported QNX has design wins with 19 of the top 25 Electric Vehicle OEMs, which constitutes roughly 61% of the EV market. Moreover, to enhance its presence, the company is targeting governments, businesses, human rights groups, etc., who could be the potential consumers on account of the rising threats of cyber-attacks. The stock of BB made a stupendous return in the recent past, while the stock price surged ~80% and ~102% in the last six months and one-year, respectively. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Adobe Inc, Absolute Software Corp etc. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 12.01 on March 05, 2021.

One-Year Price Chart (as on March 05, 2021). Source: Refinitiv (Thomson Reuters)

Loop Insights Inc.

Loop Insights Inc. (TSXV: MTRX), is a Canada-based technology company that has developed an automated artificial intelligence (AI) marketing platform. 

Key highlights 

• Made a licensing deal with Maitri Health Technologies: Recently, the company signed a letter of intent (LOI) for the grant of a non-exclusive license to Maitri Health Technologies Corp. for various aspects of Loop's technology to combine PPE, artificial intelligence and proptech in return for CAD 2 million in cash and common shares as well as a revenue-sharing arrangement. The global market for PPE is expected to exceed USD 123 Billion by 2027. The combination of Loop's technologies with Maitri's unique products has the potential to create a comprehensive offering for PPE. 

• Acquires IP Assets of Digital2Go Medial Networks: The company acquired the intellectual property assets of Digital2Go Medial Networks (Locally). “Locally” is a technology company focused on providing location data intelligence and real-time consumer engagement, which is a part of the CAD 28.95 billion location-based services industry. Moreover, the acquisition would provide new revenue opportunities with brands and retailers looking to capitalize on the increasing use of location-based services. 

• Entered into a venue management agreement with Big White Ski Resort: The Company has been selected by Big White Ski Resort to deploy its venue management platform. It would create significant revenue opportunities for both parties. The company has conservatively estimated that the model could generate CAD7.2 – 9.6 million of revenue over the term of the agreement for loop and big white ski resort. 

Financial overview of Q2 2021

Source: Company 

On December 31, 2020, the company posted a net loss of CAD 4.19 million against CAD 1.52 million in the previous corresponding period. The company did not realize any revenues. The operating expenses increased, mainly in advertising and marketing that grew to CAD 270k against CAD 38.76k and consulting fees rose to CAD 332.17K against CAD 197.54K. Share based compensation also rose to CAD 2.76 million, against CAD136.54K in the previous corresponding period. 

Risks associated with investment

The Company has diversified technologies and is focused on many verticals and distribution strategies. They are focusing on multiple verticals to generate future sales, but there is no assurance of success. Furthermore, many risk factors may limit the group’s ability to execute its strategy to achieve long‐term growth objectives like interest rates, foreign exchange rates, etc. 

Stock recommendation

Recently, we saw a rally in the stock based on many news, where it acquired IP Assets of Digital2Go Medial Networks, which would provide new revenue opportunities; also it entered into a venue management agreement with Big White Ski Resort, and the company has conservatively estimated that the model has potential to generate CAD7.2 – 9.6 million of revenue, over the term of the agreement for loop and big white ski resort. Although the company is still in its primary stage and the revenue recognition is not clear in the near term. Considering all the facts and risks, we prefer to remain on the side-line and recommend an "Avoid" rating on the stock at the closing price of CAD 1.29 on March 5, 2021.

1-Year Price Chart (as on March 05, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.