Is it crazy to be betting on BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) these days?
Actually, no, says portfolio manager John Zechner, who claims the market continues to underestimate the
value of BB’s businesses.
Over the past two years, the knives have certainly come out for Canadian tech company BlackBerry as well as for CEO John Chen whose efforts at turning the ship around were at first lauded and now criticized for pushing the company into the uber-competitive fields of IoT software and security.
BlackBerry emerged from the demise of its handset business in the early 2010s to go about the long and painful process of moving from hardware to software, but even with its strongbox of patents and a pivot into connected cars and security —always a strong suit for BB— the revenue growth projections of a few years ago have yet to fully materialize, giving investors enough cause to jump ship in search of better prospects.
Add to that a worldwide pandemic and ensuing economic slump which has put a big stop sign in front the auto industry and you’re left with a generally skeptical view of BlackBerry’s prospects.
Too bad, says Zechner, chairman and founder of J. Zechner Associates, who spoke on BNN Bloomberg on Thursday, saying BlackBerry could actually be a good way to play industry trends.
“With [BlackBerry’s operating system] QNX, auto production has been down, but they also have security software where they’ve done tremendously, something BlackBerry has been known for for a long time,” said Zechner.
“You know, do I need my head examined to buy Blackberry here? No, I think they’ve actually done a great transition to a new business, which is very tough to do in technology…”
“This company has done a tremendous transition, I think, from the old manufacturer of smartphones to a internet security, Internet of Things company, but the valuations haven’t reflected that in the stock hasn’t reflected that. I think they’ve had some execution issues and problems with QNX this year. But they recently did a great refinancing of the convertible debt down to one-and-three-quarter per cent from ownership,” Zechner said.
On the debt refinancing, BlackBerry announced this week it completed the redemption of all of its 3.75 per cent unsecured convertible debentures while also completing a previously announced private placement of US$365 million aggregate principal amount of 1.75 per cent unsecured convertible debentures to the investment manager of major shareholder Fairfax Financial and another institutional investor. On full conversion, Fairfax and its CEO Prem Watsa would reportedly own 101.8 million common shares of BlackBerry, giving it a 16.5 per cent ownership stake in the company.
BlackBerry’s share price hasn’t returned to its pre-COVID levels and is currently down 19 per cent for 2020.
Zechner says BlackBerry presents investors with one way to gain exposure to the cybersecurity space.
“I just think this thing is a cheap way to play growth in internet security technology and keeping a hand in the sector,” Zechner said. “You know, do I need my head examined to buy Blackberry here? No, I think they’ve actually done a great transition to a new business, which is very tough to do in technology.”