BlackBerry Limited (TSX: BB), provides security software and services to enterprises and governments. The Company leverages artificial intelligence (AI) and machine learning to deliver solutions in cybersecurity, safety and data privacy and offers endpoint security management, encryption, and embedded systems. 

Why should Investors make an EXIT?

• Sequentially falling gross margins: The company failed on maintaining its pace and witnessed lower gross margins on the sequential basis, implying that the company is under extreme pressure of higher cost of sales. Furthermore, its gross margins are also lower compared to an industry median in Q3 FY22.

         Source: REFINITIV, Analysis by Kalkine Group 

• Clocked negative cash from operating activities: In first nine months of FY2022 the company recorded negative cash from operations at USD 37 million, compared to net cash from operating activities at USD 30 million in the previous corresponding period.

• Reported negative adjusted EBITDA: In the reported period, the company posted negative adjusted EBITDA, which stood at USD 8 million against adjusted EBITDA of USD 29 million in the previous corresponding period. The drop in adjusted EBITDA was mainly due to debentures fair value adjustment at USD 110 million.

• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 45.8 days compared to an industry median of 25.1 days.
  

Valuation Methodology (Illustrative): EV to Sales based

*1USD=1.27CAD

Analysis by Kalkine Group 

Stock recommendation

This quarter BlackBerry delivered solid sequential billings and revenue growth for both the IoT and Cybersecurity businesses, beating the market expectations for the second consecutive quarter. On the other hand, it failed to keep up with the pace of its gross margins, which are falling on the sequential basis, implying that the company is under extreme pressure of higher cost of sales. Moreover, it reported negative cash from operating activities and negative adjusted EBITDA, which raises concerns in the mind of investors. Additionally, its cash cycle days are higher than the industry median, indicating a weak liquidity profile. Also, the Negative ROE is one of the most crucial factor which could erode the investors interest in the stock from an investment perspective. Hence, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 9.24 on February 3, 2022.

One-Year Technical Price Chart (as on February 3, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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.