BlackBerry Limited (TSX: BB) provides intelligent security software and services to enterprises and governments around the world. The corporation leverages artificial intelligence and machine learning to deliver innovative solutions in the areas of 29 cybersecurity, safety and data privacy and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems.

Key Updates:

• Launch of L-SPARK: On November 23, 2021, the company introduced the third phase of their joint accelerator program, which aims to grow Canadian technology companies focused on connected vehicle solutions. The above would enable its clients to access the company’s Intelligent Vehicle Data Platform – BlackBerry IVY, which would help them to develop high-impact solutions leveraging in-vehicle data, which would subsequently improve driver and passenger experiences.
  

• New order win: Recently, the company announced its collaboration with Mahindra & Mahindra Ltd., one of India's leading automotive companies, wherein the group would provide its leading-edge CDC platform to the new XUV700 SUV. The above technology is based on a single hardware platform, which reduces initial development and long-term costs of ownership and also provides the highest standards of functional safety and security. We believe the deployment marks a significant Indian automotive market expansion for BlackBerry Limited, whose BlackBerry QNX technology is in production programs with 45 different OEMs.

• Bullish outlook from the Automotive Secular segment: In the recent past, the automobile industry has been witnessing sea change due to the implementation of Digitization, Electrification and significant implementation of safety-critical systems such as ADAS, Digital cockpits and Gateways. Notably, BB provides solutions related to the cybersecurity services which are required for the above segment. Hence, the upcoming prospects seem immense considering the changing demand dynamics of the sector. We believe the company is highly poised to grab the opportunities arising from the above new generation automotive products & services.

Q2FY22 Financial Highlights:

• BB announces its quarterly result, wherein the company posted its revenue of USD 175 million, slide from USD 259 million in pcp. The decline was primarily attributable to lower revenue from the Licensing and Other segment (USD 15 million v/s USD 108 million in pcp) due to a decrease in income from the Company’s intellectual property licensing arrangements comprising its patent licensing agreement with Teletry.
• The group reported its gross profit at USD 112 million, as compared to USD 199 million in pcp. The decrease was due to a sluggish topline coupled with a marginally higher cost of sales (USD 63 million v/s USD 60 million in pcp).
• The quarter was marked by higher operating expenses of USD 253 million, as compared to USD 221 million in pcp, primarily due to higher cost related to debentures fair value adjustment and higher selling, marketing and administration costs. Operating loss widens to USD 141 million, from a loss of USD 27 million in pcp.
• The group reported a higher net loss of USD 144 million, as compared to a net loss of USD 23 million in pcp.

Q2FY22 income Statement Highlights (Source: Company Report)

Risks: Due to the sluggish performance from the Licensing and Other segment, the company witnessed a slide in its overall performance, and the continuation of the above trend is likely to dampen the company’s margins and profitability.

Valuation Methodology (Illustrative): EV to Sales Based

Stock Recommendation:

The company is a leading service provider within the Internet of things (IOT) segment, which includes services like Safety-Critical Real-Time Operating System, Cryptography & Device Security, Asset Tracking etc. The above segment is likely to grow from the current USD 45 billion market to USD 89 billion in FY25, leaving ample opportunities for the company to accelerate its operations. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Absolute Software Corp, CGI Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of BB at the last traded price of CAD 12.92 on November 24, 2021. 

Technical Analysis Summary:

One-Year Technical Price Chart (as on November 24, 2021). Source: Kalkine, Analysis by Kalkine Group 

*The reference data in this report has been partly sourced from REFINITIV.

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