There may be nothing to the rumours of a Fairfax deal to buy BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) but the software company has a lot more question marks around it, says portfolio manager James Telfser, who cautions investors to not get caught up in M&A speculation.
Shares of BlackBerry jumped earlier this week on a report that Canadian holding company and BlackBerry shareholder Fairfax Financial was thinking of buying up the whole company. Currently its second-largest shareholder at 8.4 per cent, Fairfax made a $1-billion investment in BlackBerry in 2013 after its plans fell through to buy the company outright.
The new rumour has since been denied by Fairfax.
“Fairfax is not currently making a bid, or engaged in making a bid, for BlackBerry,” said Fairfax general counsel Derek Bulas to BNN Bloomberg on Tuesday.
Telfser, managing director at Aventine Asset Management, said rumour or not, BlackBerry’s troubles are plentiful enough that investors shouldn’t try to trade the stock on a potential buyout.
“There’s been a whole bunch of guys coming in to try to take a swipe [at BlackBerry], or at least rumour has it, and who knows what the reason is,” said Telfser, speaking on BNN Bloomberg on Wednesday. “But there certainly was a lot of volume on the sell side so I’m always a little bit suspect when that when these things happen.”
“I’ve been following it for years and this has been a challenging period for them right now. They’ll likely come out on the other side but they have a lot of that automotive exposure there now with with QNX which is going to hold them up a little bit,” Telfser said. “They’ve got hurt more than a lot of other software companies that we followed by not being able to close deals in the quarter, which was a bit surprising and the stock took another leg lower in the last few months as a result of that.”
Telfser thinks BlackBerry does have an interesting business in Cylance, its cybersecurity purchase completed last year for $1.4 billion, which could see some organic growth through the other side of the current COVID-19 crisis.
“I wouldn’t chase it here on any of these rumours,” Telfser said. “I’d give this one some some, see how they work things out.”
BlackBerry’s share price has been on a downward slide for years now and has seen its value drop from a high of $17.00 in January 2018 to as low as $3.94 at the bottom of the market pullback in March of this year. Since then, the stock has risen to now above $7.00.
BlackBerry last reported earnings in late March where the company’s Internet of Things business was affected by the COVID-19 crisis and the resulting hit to the auto industry where BlackBerry’s QNX operating system is used by a number of major automakers.
The company’s fiscal fourth quarter featured non-GAAP revenue up 13 per cent to $291 million and non-GAAP EPS of $0.09 per share. Analysts had been expecting earnings of $0.04 per share on revenue of $287 million.