BlackBerry Limited

BlackBerry Limited (TSX: BB) provides intelligent security software and services to enterprises and governments around the world and utilizes AI and machine learning tools to deliver innovative solutions across cybersecurity, safety and data privacy solutions.

Key Updates:

• Rising demand for Unify Endpoint Security & Endpoint Management: Due to the rising ‘work from home’ culture, the IT industry witnessed a massive 300% increase in cybercrimes during COVID-19. As per the recent study, 50% of the organizations are likely to have mobile threat defense by the end of 2023, from the current 20% in 2020. Moreover, due to an increase in the total number of vendors, the industry would seek higher adoption of Windows 10, Google Chrome OS and Apple macOS, which would further create the need for a combined endpoint management console. Hence, we believe the company is highly poised to utilize the upcoming opportunity arising from the industry.
• Automotive Cars suggest the new room for expansion: The automobile segment witnessed a major shift due to the change in the consumer preferences. Consumers are leaning towards fully automotive cars rather than semi-automotive or traditional cars. The reason being, the automotive cars have advanced software component with better safety features compared to the traditional segment. Hence, the applications related to IT and software require cybersecurity, and Blackberry QNX bridges gap by offering safety-critical operating system for car manufactures. Notably, Blackberry QNX reported design wins with 23 of the world’s top 25 electric vehicle OEMs, which seems encouraging, looking at the growing traction for Electric Vehicles.                                           

Source: Company Presentation

• Association with IBM Canada: On April 13, 2021, the company established its association with IBM Canada, wherein the latter would resell BlackBerry Spark ^® to the Governments and other corporates. The above platform provides an endpoint management system, endpoint security and critical event management software.

FY21 Financial Highlights:

• BB announced its full-year result, wherein the company posted revenue of USD 893 million, as compared to USD 1,040 million in FY20.
• Gross margin slide to USD 643 million from USD 763 million in FY20. The decline was primarily attributed to lower revenue partially offset by lower cost of sales (USD 250 million v/s USD 277 million in FY20).
• The period was marked by higher operating expenses of USD 1,750 million, as compared to USD 912 million in FY20. The steep increase was due to higher impairment expenses (USD 594 million v/s USD 22 million in FY20), coupled with increased loss from debentures fair value adjustment (loss of USD 372 million v/s a gain of USD 66 million in FY20).
• Operating loss widened drastically to USD 1,107 million from USD 149 million in the previous year.
• Net loss stood at USD 1,104 million, as compared to the net loss of USD 152 million in the previous financial year.

Source: Company Reports

Risks: Despite offering new-generation services, the company reported a slide in income from both of its segments. Continuation of the above trend would be an area of concern.

Stock Recommendation:

The company has shifted to a core ‘Software & Services’ company from a ‘Hardware’ company and is catering to the industry-leading businesses and government bodies, which is a key positive. During the last few years, the company launched Spark Suites, combining Unified Endpoint Management (UEM) and Unified Endpoint Security (UES) to expand its footprints across cybersecurity segment. The growing demand for cybersecurity is likely to support the company’s sales volumes in the coming days.                 

Source: Company Presentation

The stock of BB is available at a significantly discounted valuation of EV to Sales of 4.9x on NTM basis, as compared to the industry (Technology) mean of 8.5x. Hence, considering the valuation and growth prospects, we give a ‘Hold’ rating on the stock of BB at the last closing price of CAD 10.84 on April 21, 2021.

One-Year Price Chart (as on April 21, 2021). Source: Refinitiv (Thomson Reuters)

Docebo Inc.

Docebo Inc. (TSX: DCBO) offers a cloud-based learning platform for both internal and external enterprise learning with real-time tracking of training results, optimizing time, and reducing costs related to traditional learning methods. 

Key Highlights:

• Solid Cash Flow growth: The company reported a remarkable growth in its cash from operations of USD 5.155 million in FY20, as compared to a cash outflow of USD 4.582 million in FY19. Despite a net loss, the company reported higher deferred revenue and growth in Trade and other payables. Notably, free cash flow during the period was reported at USD 3.710 million, improved significantly from a loss of USD 4.948 million in FY19.

Source: Company Reports

• Consistent Growth in Performance Metrics: From FY16 to FY20, the company reported constant growth in total number of customers and average contract value. We believe, the above momentum is likely to sustain in the coming years, as Average Recurring Revenues include multi-year contracts. Notably, the company’s average contract value has grown more than three-times since 2016, which indicates impressive customer satisfaction.

Source: Company Presentation

• Launch of New Product: On March 30, 2021, the company announced launch of a multi-product learning technology suite. The above products are dedicated to content creation and analysis required to measure eLearning impact via artificial intelligence (Al). 

FY20 Financial Highlights:

• DCBO announced its full-year result, wherein the company posted revenue of USD 62.917 million, higher than USD 41.443 million in FY19.
• Gross profit soared to USD 51.378 million, as compared to USD 33.078 million in FY19. The increase was driven by higher revenue, partially offset by the higher cost of revenue (USD 11.539 million v/s USD 8.365 million in pcp).
• Total operating expenses were recorded at USD 58.643 million v/s USD 42.887 million in pcp due to an increase in higher general and administrative expense (USD 16.998 million v/s USD 13.140 million in pcp) and higher sales and marketing expense (USD 24.020 million v/s USD 18.037 million in pcp). Meanwhile, research and development expense (USD 13.000 million v/s USD 9.436 million in FY19) also contributed to the rise.
• Operating loss narrowed to USD 7.265 million, from a loss of USD 9.809 million in FY19.
• Net loss for the year stood at USD 7.654 million, as compared to a net loss of USD 11.914 million in FY19.
• The group reported its cash and cash equivalents of USD 219.658 million, which stood significantly higher from USD 46.278 million in FY19.

FY20 Income Statement Highlights (Source: Company Report)

Risks: Due to the nature of the industry, DCBO requires constant innovation for its products to remain competitive, and a major part of the expenses utilized for the research and development. Hence, the arrival of a new player would lead to price competition, which might dampen the margins and cash flows.

Valuation Methodology (Illustrative): EV to Sales based

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

Stock Recommendation:

The company is focusing on its SaaS platform to cater the growing customer base and their requirements, also it would assist in proper analysis of the client psychology. Going forward, the company would continue to invest in product development and sales and marketing, which would lead to an improved business prospect. The company’s revenue is not only dependent on the North American Economy as it derives ~30% of the revenue from EMEA region as well, which is a key positive.                                      

Source: Company Presentation

We have valued the stock using the EV to Sales based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Kinaxis Inc, Descartes Systems Group Inc and Lightspeed POS Inc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of DCBO at the last closing price of CAD 58.61 on April 21, 2021.

One-Year Price Chart (as on April 21, 2021). Source: Refinitiv (Thomson Reuters)

Extreme Vehicle Battery Technologies Corp

Extreme Vehicle Battery Technologies Corp (CSE: ACDC) is a Blockchain and Battery technology company with revolutionary, patented Battery Management Systems (BMS) designed to meet the exponentially growing demand for scalable, smart solutions for the rapidly growing Electric Vehicle (EV) and Energy Storage Solution (ESS) markets.

Key Highlights 

• World's fastest-growing markets: The Electric Vehicle (EV) market is one of the world's quickest developing business sectors, projected to develop practically 5x over the course of the following six years. EV framework has become a worldwide need as significant governments and organizations have focused on burning through billions of dollars towards building EV charging foundation. As of late, U.S President Joe Biden has proposed to fabricate 550,000 EV charging stations in the following not many years as a feature of the USD 2 trillion intend to battle environmental change. 

• Launched IoniX Pro EV Smart Charger: Recently, the company launched its previously unveiled IoniX Pro EV Smart Charger Series. Furthermore, the company wants to ensure that it is not only part of this rapidly growing revolutionary change but also wants to be a disruptive force in it. 

• Partnership with Daymak Inc.: The Company consented to an association arrangement with Daymak Inc., Canada's biggest wholesaler of Light Electric Vehicles (LEVs). The gathering has effectively started the way toward getting its items into the Daymak appropriation organization, including the absolute most noticeable North America names, like Costco, Walmart and Best Buy. The Company is additionally working with Daymak to bring new items into the LEV market together. 

• Revenue guidance for the next 24 months: The Daymak collaboration is expected to produce sales of up to CAD 300 million in the next 24 months, according to the company. It further projects that the costs of raising this income would be CAD 225 million, resulting in profits of up to CAD 75 million. Also, significantly higher margins are anticipated, by the group.

• Trading in a declining channel: After a sharp rise in early February from roughly CAD 0.05 to CAD 0.9 levels, it has traded with a corrective bias while trading in a declining channel. A decisive break out of the upper trend line of channel would further fuel the momentum. 

Source: Refinitiv (Thomson Reuters) 

Financial overview in CAD

Source: Company 

• During the three months ended October 31, 2020, the Company earned zero revenue, against CAD 1,445 in the previous corresponding period.

• On the back of higher consulting fees of CAD 134,000 Vs CAD15,000 and higher professional fees of CAD 127,156 Vs CAD38,702 and share based compensation of CAD 24,098 the company posted Net loss of CAD 405,021 against CAD 167,731 in pcp. 

• As of October 31, 2020, the Company held cumulative assets of CAD 1.25 million, consisting of CAD 173,348 in cash. 

Risks associated with investment

There are many factors which could impact the operations and financials of the company such as customers’ ability to pay for the company’s EV charging equipment and related service, high completion, the impact of business disruption would lead to negative impact on demand for the company’s EV charging equipment and related services, etc. 

Stock recommendation 

The accelerating adoption of electric vehicles represent an enormous opportunity for the Company. The Electric Vehicle (EV) market is one of the fastest-growing markets globally. It is projected to grow almost 5x over the next six years, which would generate plenty of opportunity for the Company. The stock of ACDC has traded with a corrective bias while trading in a declining channel. A decisive break out of the upper trend line of the channel would further fuel the momentum. Hence, considering the industry's scope of expansion, above rationales and technical indicators and patterns, we recommend a “Hold” rating at the closing price of CAD 0.325 on April 21, 2021.

1-Year Price Chart (as on April 21, 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.