Real Matters Inc.

Strong Quarterly Performance with a Record US Appraisal and Title Revenues: Real Matters Inc. (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. As on 2 June 2020, the market capitalization of the company stood at CAD1.84 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, the company reported a healthy balance sheet with cash and cash equivalents of USD89.1 million and credit facilities of USD40 million. In the same time span, US Appraisal and US Title revenues have hit record high levels and stood at USD71.3 million and USD30.8 million, respectively. The significant increase in revenues in these segments has resulted in an increase in consolidated adjusted EBITDA to USD14.6 million and growth in adjusted EBITDA margins to 40.6% from 13.8%.

Quarterly Financial Highlights (Source: Company Reports)

Automatic Securities Disposition Plan: REAL has established an Automatic Securities Disposition Plan which will allow a disciplined disposition of a portion of Mr. Smith’s securities in Real Matters at prevailing market prices.

Future Expectations and Growth Opportunities: Despite the softer market conditions due to the global pandemic, REAL has not witnessed any material impact on its operations. This demonstrates its ability to maintain a competitive advantage in this uncertain environment. The lower interest rate environment has created significant long-term opportunities for the company. The company believes that the industry underwriting capacity is expected to pose a significant hurdle to mortgage market growth in the near term because of the reduced productivity due to COVID-19 crisis. However, the resilient business model of the company and its increased focus on growing market share in both of its US Appraisal and US Title businesses will result in the future growth.

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

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, 1USD=1.38 CAD

Stock Recommendation: The resilient business model of the company and its competitive advantage over the peers in the uncertain environment well-places REAL to capitalize on increasing growth opportunities from new clients and expanded market share. The stock of REAL gave a return of 64.61% in the past three months and a return of 48.54% in the last one month. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). The stock is inclined towards its 52-week high of CAD24.91, but still holds the potential for growth as depicted by the valuation methodology. Considering the attractive returns in the past one month, strong financial performance amidst the pandemic and positive long-term outlook, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 21.91 on 2 June 2020.

REAL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

BlackBerry Limited

BlackBerry Spark Suites Launch to Provide Companies Intelligent Security: BlackBerry Limited (TSX: BB) is a software provider with a stated goal of end-to-end secure communication for enterprises. As on 2 June 2020, the market capitalization of the company stood at CAD4.01 billion. The company has recently announced the availability of BlackBerry Spark® Suites, which offers cybersecurity and endpoint management options to the enterprises, helping them to protect data, minimize risk, and reduce cost and complexity. The company has also partnered with the University of Windsor to develop and deliver a cybersecurity curriculum for its Graduate Master's Program in Applied Computing. Blackberry Bootcamp will cover cybersecurity topics and will offer a unique opportunity for students to develop crucial data science skills.

Fourth Consecutive 5-Star Ratings in the 2020: The company has announced that BlackBerry Enterprise Partner Program and the BlackBerry Cylance Partner Program both received a 5-Star rating from CRN_® for the fourth consecutive year. This rating is awarded to the companies which offer solution providers the best partner programs. BB has also appointed Thomas Eacobacci as President, who will be responsible for driving the sales, field marketing, engineering, and customer support for BlackBerry Spark® and BlackBerry IoT Solutions.

Quarterly Performance (For the Period Ended 29 February 2020): During the three months ended 29 February 2020, the company witnessed a growth of 13% in total non-GAAP revenue to USD291 million and generated free cash flow of USD32 million. In the same time span, non-GAAP operating earnings were USD51 million, resulting in non-GAAP earnings per share of USD0.09.

Quarterly Financial Performance (Source: Company Reports)

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

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has continued to grow its distribution reach to over 12 new channel partners and has expanded monitoring solutions outside of the U.S. and Canada. As per TSX, the stock is inclined towards its 52-week low level of CAD3.95, and thus holds a potential for growth. The stock of BB gave a return of 16.2% in the last one month. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price offering an upside of middle single-digit (in percentage terms). For the said purposes, we have considered Sharp Corp, Commvault Systems Inc and Cyberark Software Ltd as peers. Considering the current trading levels, attractive returns in the past three months, decent financial performance, and continued expansion, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 7.24 on 2 June 2020.

BB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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