Absolute Software Corp

Absolute Software Corp. (TSX: ABT) delivers a cloud-based service that supports the management and security of computing devices, applications, and data for a variety of organizations globally. The company’s differentiated technology is rooted in their patented Persistence® technology, which is embedded in the firmware of laptop, desktop, and tablet devices by most the world’s largest global computer manufacturers (“PC OEMs”).

1Q FY21 Preliminary Data:

The company has announced some preliminary financial data for 1Q FY2021. These preliminary estimates are intended to provide information about management’s current expectations regarding certain aspects of the company’s financial performance.

• Revenue for the fiscal quarter ended September 30, 2020, is expected to be approximately USD 28.5 million.
• Adjusted EBITDA for the same period is expected to be approximately USD 8.1 million, and net income to be around USD 2.6 million.
• Cash flow from operating activities for the same period is expected to be approximately USD 14.7 million.

Financial overview of 4Q 2020

Source: Company

• Total revenue posted by the company in 4Q FY20 was USD 27.2 million, an increase of 7% over USD 25.3 million recorded in the previous corresponding period.
• Total Annual Recurring Revenue was USD 108.3 million, representing an increase of 11% on a Y-o-Y basis.
• Adjusted EBITDA – pre-IFRS 16 in 4Q FY20 was USD 7.5 million, or 28% of revenue, compared to USD 4.9 million or 19% of revenue in pcp.
• Cash from operating activities – pre-IFRS 16 in 4Q FY20 was USD 11.1 million, an increase of 220% over USD 3.5 million recorded in pcp.
• The company paid a quarterly dividend of CAD 0.08 per common share during 4Q FY20. 

Risks associated to investment

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. As the Company is in the Information technology sector hence, the significant risk of technological change arises. Other risks are also there such as the Company’s business strategy, evolving industry standards, intense competition, Currency fluctuations etc.

Valuation Methodology (Illustrative):  Price to Cash Flow

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company is continuously expanding its Global Resilience Ecosystem. At present, the company has approximately 40 independent endpoint security and productivity tool applications which help customers ensuring their mission-critical security controls remain healthy and undeletable. We expect that the company’s ARR, which results from customer term subscriptions to their software service, will continue to provide revenue stability, profitability, and stable cash flow.

Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 15.9 on 27 October 2020. We have considered Kinaxis Inc, Real Matters Inc, Real Matters Inc, Open Text Corp etc. as the peer group for the comparison.

ABT daily technical chart. Source: Refinitiv (Thomson Reuters)

BlackBerry

BlackBerry (TSX: BB), once known for being the world's largest smartphone manufacturer, is now exclusively a software provider with a stated goal of end-to-end secure communication for enterprises. The firm provides endpoint management and protection to enterprises and embedded software to automotive, medical and industrial OEMs and suppliers.

Key Highlights

• The group announced that BlackBerry QNX technology will power the innovative digital cockpit in ARCFOX αT, a high-end, intelligent, electric SUV.
• The company has partnered with ServiceNow to integrate the BlackBerry® AtHoc® service within the Now platform for rapid crisis communications and IT service management.
• The group unveiled BlackBerry® Protect Mobile, a new mobile threat defense (MTD) solution that extends the powerful AI-based security in BlackBerry® Protect to mobile devices. The solution provides security teams with unprecedented visibility into their mobile, desktop, and server endpoints from a single security console, which is critical during a time when remote workers are being targeted with mobile malware and phishing attacks.

• In Q2FY21 the Company made partnerships with Vodafone, Bell and TELUS. TELUS will partner to sell the Company’s AtHoc, which is the most secure critical event management solution, across Canada.
• The Company won some more customers in this quarter, for their new BlackBerry Spark Suites. To name some of these customers are US Air Force, UK Ministry of Defence, Royal Canadian Mint, Rolls Royce and Lloyds Bank.

Financial Overview of 2Q FY21 (United States dollars, in millions, except per share data)

Source: Company

• The Company recognized revenue of USD 259 million and incurred a net loss of USD 23 million, representing loss per share of USD 0.04.
• Software and Services segment reported the revenues of USD 151 million in 2Q FY21, a decline if of USD 17 million compared to USD 168 million in 2Q FY20. This decrease in Software and Services revenue was primarily due to a decline of USD 21 million in recurring royalties in BlackBerry QNX, due to the slowdown in the automotive market related to the COVID-19 pandemic.
• Licensing and Other segment showcased the revenue of USD 108 million in 2Q FY21 an increase of USD 32 million compared to USD 76 million in 2Q FY20. Company’s patent licensing agreement with Teletry was the prime reason behind this increase in revenue.

Comparative breakdowns of the geographic regions

Source: Company

Risks associated to investment

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

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

As the demand for new vehicles has been recovering after hitting bottom in April, as lockdown restrictions ease and buyers return, the company’s QNX car software sales numbers have started showing a positive reversal sign. This technology will also be used by StradVision, in ADAS and autonomous vehicle systems from South Korean automakers. The company had also engaged some new customers with them for their new BlackBerry Spark Suites, besides this, they made some new partnership along with Vodafone, Bell and TELUS in 2QFY21.

Therefore, based on the aforementioned factors and valuation, we have given a “HOLD” rating at the closing price of CAD 6.40 on October 27, 2020. We have considered CGI Inc, Citrix Systems Inc, Absolute Software Corp, ProntoForms Corp etc. as the peer group for the comparison.

BB daily technical chart. Source: Refinitiv (Thomson Reuters)

Real Matters Inc

Real Matters Inc (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The company help their clients in making incredibly smart decisions about real estate by leveraging technology to deliver better quality, transparency and efficiency.

Key highlights

• By fiscal 2021, the company is targeting to have a market share of 15%-20% for its U.S. Appraisal segment and 1%-3% for its U.S. Title segment.

• The company expects to achieve consolidated Net Revenue margin in the range of 35-40% and Adjusted EBITDA margins in the range of 25-30%. 

• The company purchased 64,000 shares at the cost of USD 432,000 in 3Q 2020 and for Fiscal 2020 till date it has purchased 1.6 million shares under NCIB for USD16.0 million. This shows the confidence of management in their business.

• U.S Appraisal segment is the most significant contributor in terms of revenues; more than 65% of revenue comes from this segment. The company witnessed higher market volumes and new client additions in this segment which has resulted in Net Revenue and Adjusted EBITDA margin expansion.

Source: Company

Financial overview of 3Q FY2020

Source: Company

• The company came out with robust numbers in 3Q 2020, where they posted revenues of USD 118.09 million, up 29.2% compared to USD 91.4 million in 3Q 2019.
• Consolidated net revenues were up 52.7% to USD 43.9 million in 3Q 2020 as against USD 28.8 million in 3Q 2019.
• A highly remarkable performance is shown by consolidated EBITDA margins in this quarter where the company registered a growth of 101% to USD 20.9 million from USD 10.4 million in the same period of last year.

Risks associated to investment

Residential mortgage volume in North America is a crucial driver for the company’s financial performance, and cyclical trends and seasonality influence this. There are many other risks which can affect the group’s business and financial performances. Some of them can be classified as interest rates, refinancing rates, the capacity of lenders to underwrite mortgages, house prices, housing stock supply and demand etc.

Event Update

The company will release its Q4 2020 numbers on Nov 20, 2020.

Valuation Methodology (Illustrative): Price to Cash Flow

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company witnessed higher market volumes and new client additions in its U.S. Appraisal segment, which has resulted in Net Revenue and Adjusted EBITDA margin expansion. Along with this, the company is also targeting to have a market share of 15%-20% for its U.S. Appraisal segment and 1%-3% for its U.S. Title segment by fiscal 2021. For Fiscal 2020 till date, the company has purchased 1.6 million shares under NCIB at the cost of USD16.0 million. This shows the confidence of management in their business.

Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 23.88 on 27 October 2020. We have considered Descartes Systems Group Inc, Sierra Wireless Inc, Kinaxis Inc etc. as the peer group for the comparison.

REAL daily technical chart. 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.