BlackBerry Limited 

Growing Cyber-security Demand Lead to Business Growth: BlackBerry Limited (TSX: BB) provides security software and services to several business houses and governments bodies across the globe. The company leverages its AI and machine learning tools to offer innovative solutions across cybersecurity, safety and data privacy.

On May 5, the company announced that in the past six months it has added 12 new channel partners to expand its distribution reach. Within the 12 new channel partners, two are from Mexico.

Revisiting Q4FY20 Financial Performance: BB announced its quarterly results for the period ended February 29, 2020. The company reported a jump in its revenue both on a y-o-y and q-o-q basis. The company posted revenues of US$ 282 million, as compared to US$ 255 million in the previous corresponding period. On a non-GAAP basis, BB’s revenues jumped 13% y-o-y to US$ 291 million. BB reported a gross profit of US$ 212 million, as compared to US$ 206 million in the previous corresponding period. However, the Group witnessed a shrink in gross margin to 75.2%, from 80.8% in pcp, due to the significant increase in the cost of sales. The company reported a GAAP operating loss of US$ 41 million, as compared to US$ 28 million in Q4FY19. BB reported adjusted net earnings of US$ 51 million, as compared to the net earnings of US$ 60 million in the prior year quarter.

Q4FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: BB stock has appreciated ~32% in the last one month, outperforming the index by ~15%. The company’s expansion of distribution network is likely to add growth opportunities for BlackBerry Radar, especially in the transportation segment. The company’s product offerings are likely to witness increased demand from both corporate and retail businesses, thanks to its simple user experience and accessibility from any location and on over any network. BB expects stronger performance in the second half of FY21, as compared to the first half of FY21. The stock is trading above its 20-days moving average of ~CAD 5.61. We expect the industry to be benefiting from increasing adoption of cyber-security services across the globe. Considering the improving business prospects, we recommend a ‘Hold’ rating on the stock at the current market price of CAD 6.03 as on May 4, 2020.

BB One-Year Daily Price Chart (Source: Thomson Reuters)

Docebo Inc.

Solid Key Performance Metrics: Docebo Inc. (TSX: DCBO) is a leading artificial intelligence-powered learning technology provider. Docebo’s robust learning platform enables companies to train their internal and external workforce, customers, and partners to increase productivity. Docebo went public in October 2019 with an IPO of 4,687,500 shares at CAD 16.00 per share.

Financial performance: Docebo impressed with its financial performance. The company posted revenues of US$ 41.4 million in FY19, up 52.8% on a y-o-y basis. The company’s strong performance was led by solid growth in North America. Docebo ended FY19 with more than 1,800 customers, thanks to the growing traction within the mid-sized enterprises and divisions of large global companies. Investors should note that the subscription revenues jumped 56.1% y-o-y in FY19. Meanwhile, annual recurring revenues soared 57.9%, which is impressive. Gross profit surged 54.9% to US$ 33.2 million. Meanwhile, gross margin expanded 100 basis points to 80.1%. Docebo reported an operating loss of US$ 9.8 million, as compared to US$ 9.0 million in the prior year. The y-o-y increase in operating loss reflects higher general and administrative, sales and marketing, and research and development expenses. The company’s net loss increased slightly to US$ 11.9 million, as compared to US$ 11.7 million in FY18. The y-o-y increase is due to the higher finance costs. Cash flow used in operating activities came in at US$ 4.6 million, as compared to US$ 2.3 million in FY18.

Financial highlights (Source: Company Reports)

Valuation Methodology (Illustrative): EV/ Sales Based Relative Valuation

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

Stock recommendation: Docebo stock is down about 7% so far this year and has shown solid recovery in the recent past. The recent uptrend in the Docebo stock was fuelled by the company’s impressive set of FY19 financial numbers. Docebo’s key performance metrics look strong. For instance, the company’s subscription and professional services revenues are growing at a healthy pace. Meanwhile, annual recurring revenues jumped 57.9% y-o-y, which is an encouraging sign and ensures future stability. Docebo’s average contract value increased 34.5% to US$ 26.1 million in FY19, which is impressive. Meanwhile, customers increased to 1,808 from 1,540 in the prior year.  Also, DCBO’s net dollar retention rate remains greater than 100%, which simply implies the stability of its revenue base and long-term value of its customers. The COVID-19 outbreak is likely to pose challenges for almost all businesses around the world. However, this could be a blessing in disguise for Docebo. Enterprises are likely to rely more on digital learnings and training, rather than the live delivery of training. This could benefit companies like Docebo. We have valued the stock using EV/Sales multiple. The stock is currently trading at EV/Sales (TTM) multiple of ~6x and we expect to trade on similar multiple on FY20E revenue and arrived at a target price offering a lower-double digit upside potential (in % terms). Hence, we recommend a ‘Speculative Buy’ on DCBO stock at the closing price of CAD 15.65 on May 4.

DCBO Daily Price Chart (Source: Thomson Reuters)

NexJ Systems 

Improved performance: NexJ Systems (TSX: NXJ) offers AI-driven customer management software to the financial industry including banks, insurance and wealth management companies. NexJ’s products boost customer engagement and help its clients in driving productivity.

Financial highlights: On April 29, NexJ Systems reported the first quarter result. The company reported sales of CAD 3.98 million, down about 7% from the prior year quarter. The y-o-y decline in sales reflects decrease in the license and subscription fees and maintenance and support revenues. However, strong growth in the professional services revenues supported the top line. The company’s cost of revenues declined by 28% y-o-y to CAD 1.33 million, reflecting lower headcount and change in employee mix. Gross profit increased by 10%, to CAD 2.65 million, while gross margin expanded to 67% as compared to 57% in the prior year quarter. The stellar growth in gross profit and gross margin came on the back of the decline in cost of revenues. NexJ’s research and development expenses fell 27% y-o-y, while sales and marketing and general and administrative expenses increased by 3% and 15%, respectively. The company reported a net a loss of CAD 1.25 million in the first quarter, reflecting a sharp improvement from net loss of CAD 2.58 million in the prior year quarter. The company ended the quarter with cash & cash equivalents of CAD 9.22 million with total assets of CAD 17.42 million.

Financial Highlights (Source: Company Reports)

Stock recommendation: Amid COVID-19 outbreak and broader market sell-off, NXJ fell by more than 41% so far this year. The sharp decline in NXJ stock provides a good entry point. NXJ’s product offering play a pivotal role for the banks and financial institutions to maintain their customer base. Moreover, the need for NXJ’s offerings is likely to increase as managing the client relationship is top priority amid the COVID-19 outbreak. Management expects that the company’s AI-driven client interaction products positions it well to benefit from the increase in demand. Further, NXJ stock trades cheap. For instance, NXJ stock trades at a forward EV/Sales multiple of 0.75x, as compared to the industry average of 3.23x. However, the COVID-19 pandemic outbreak has created significant disruptions in almost all the sectors, which could hurt NXJ’s prospects too. Hence, we recommend a ‘Speculative Buy’ on NXJ stock at its closing price of CAD 0.50 on May 4, 2020.

NXJ One-Year Daily Price Chart (Source: 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.