BlackBerry Limited

BlackBerry Limited (TSX: BB) provides end-to-end secure software communication for organizations. The group provides endpoint management and protection to organizations specializing in regulated industries like government, as well as embedded software to the automotive, medical, and industrial markets.

Key Highlights:

• Increasing Customer base, supported by the growth in the addressable market: The products of the company are being used across several new areas like Consumer Services, EV segment, insurance providers, Automakers / Suppliers etc., due to the rising security concerns across the globe. We believe the above increase in demand is likely to support the company’s operations, which is a key positive.           

Current Addressable Market (Source: Company Presentation)

• Strong Cash Flow Generation: The group reported a robust cash flow growth despite a sluggish bottom-line. Cash from operations stood at USD 82 million, significantly higher than USD 26 million in FY20. Moreover, free cash flow remained strong at USD 74 million in FY21, which is commendable. 

• Impressive Long-term goals: The company derives its major income from Recurring Software Product Revenue. A higher recurring revenue enhances repetitive business and provides performance stability. The company is looking to derive ~90% of the total revenue from it, which would provide stable top line growth for the company in future. The company reported its gross margin at 72% in FY21, and it is targeting its gross margin to 80% to 85%. The group is also focused on increasing its Adjusted EBITDA margin between ~25–30% from current 16%. To achieve the above targets, the company is focusing on product innovation and investing in future categories, adopting scalable financial model through higher recurring revenue etc.

BB’s long-term target (Source: Company Presentation)

• Launch of New Product: Recently, the company reported the launch of BlackBerry® Optics 3.0, which is a next-generation cloud-based endpoint detection and BlackBerry® Gateway, which is the company's first AI-empowered Zero Trust Network Access (ZTNA) product.

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 the previous financial year. The decline was primarily attributable to a lower income from both the Software and Services segment and Licensing and Other segments.
• Gross margin stood at USD 643 million, v/s USD 763 million in FY20. The decline was due to lower revenue, partially offset by lower cost of sales (USD 250 million v/s USD 277 million in FY20).
• The quarter was marked by lower research and development costs (USD 215 million v/s USD 259 million in FY20), and a slide in Selling, marketing and administration expenses (USD 344 million v/s USD 493 million in FY20). However, total operating expense stood higher at USD 1,750 million, as compared to USD 912 million in FY20, due to loss from debentures fair value adjustment of USD 372 million v/s a gain of USD 66 million in FY20.
• Cash and cash equivalents are recorded at USD 214 million, while total assets stood at USD 2,818 million.

FY21 Income Statement Highlights (Source: Company Report)

Risks:  The company’s product requires constant innovation in order to remain competitive and to retain its market share. Hence, the this could cost higher R&D expenses, which might impact the company’s profitability and cash flows.

Stock Recommendation:

The stock of BB appreciated ~50% and ~63% in the last six months and one year, respectively, due to the rising demand for its product on account of the higher application of Artificial Intelligence (AI), increase cybersecurity due to increase work from home options etc. Moreover, the company has a strong client base, and we believe the list would increase in the course of time due to increasing cyber-attacks across the globe. On the valuation front, the stock is trading at a forward EV to Sales multiples of 4.9x as compared to the industry (Technology) mean of 7.9x. This suggests further scope of price appreciation. Hence, considering the aforesaid factors, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 10.57 on May 18, 2021.

One year-Price Chart (as on May 18, 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 Updates:

• Strong Operational Metrics: In Q1FY21, the company has increased its customer base to 2,333 from 1,831 in Q1FY20. Moreover, the average contract value per customer increased from ~USD 28K as of Q1FY20 to ~USD 36K in Q1FY21, which is encouraging. Notably, ~91% of the total revenue is being derived from the subscription segment, which is recurring in nature, and hence it indicates revenue stability. The company’s gross profit margin also surged to 82.2% in Q1FY21, from 79.1% in pcp. Annual Recurring revenue stood at USD 83.4 million, depicting a 61% y-o-y surge over Q1FY20.                               

Source: Company Presentation

• Key Partnerships with renowned players: Recently, the company collaborated with four major players, which would support its global expansion. The details are summed up below:

1. Collaborated with Vartopia, wherein the group would deliver learning and certification through the partner portal deployed by the customers and partners across the world. Vartopia provides Partner Relationship Management solution which links with technology vendors and has wide a network of more than 500,000 partners. 

2. The company made an agreement with Vinsys, which is a leader in the corporate training and learning technology segment and has been operating for the last two decades. The above collaboration would help the company to scale its multi-product learning suite across the Middle East and throughout APAC.

3. The group also associated with Bluewater, a renowned player within the learning & talent technology. The above collaboration would provide a comprehensive set of Managed Services in order to cater to the growing needs of its rapidly diversifying client base. 

4. Last but not least, the group collaborated with MHR International Group, which offers innovative HR, recruitment, payroll, business analytics software. The company would innovate and integrate its learning suite like HCM Platforms, iTrent and People First.

Q1FY21 Financial Highlights:

• DCBO announced its quarterly result, wherein the company posted revenue of USD 21.742 million, reflecting a surge of 60.7% on y-o-y basis. The growth was driven by was primarily attributable to revenue from new customers, as well as up-selling to existing customers.
• The company reported a surge of 135.5% in operating expense at USD 23.502 million over Q1FY20, due to increase in cost of revenue, higher general & administrative costs, and a surge in sales & marketing expense. Adjusted EBITDA loss widened to USD 2.473 million, from USD 2.389 million in pcp.
• Net loss for the year stood at USD 5.644 million, as compared to a net profit of USD 0.743 million in Q1FY20.
• The group reported its cash and cash equivalents at USD 217.384 million, while total assets were recorded at USD 254.714 million.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to the nature of the industry, the company requires constant innovations for its products in order to remain competitive. Moreover, the group reported a surge in its input costs in the recent past, and the continuation of the above trend would likely dampen the profitability and cash flows of the firm.

Stock Recommendation:

The company recently joined Amazon Web Services (AWS) ISV Partner Path, which would enhance the company’s market reach by utilizing several tailored programs to access AWS’ resources and partner network. Moreover, the recent collaboration with the industry leaders is likely to enhance the company’s presence and offerings, which is a key positive. On the valuation front, the stock is available at forward price to cash flow multiple of 14.8x, as compared to the industry median of 18x.  This reflects further room for price increased. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 60.75 on May 18, 2021.

One-Year Price Chart (as on May 18, 2021). Source: Refinitiv (Thomson Reuters)

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