BlackBerry deserves more love, this investor says

It’s been a while since everyone and his dog was walking around with a BlackBerry handset but with the major lifting behind it on a multi-year turnaround, it’s time to give BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) some of the love it deserves. So says portfolio manager John Zechner of J. Zechner Associates.

“I like BlackBerry. It’s been a frustrating trade. I’ve had it as a Top Pick recently,” said Zechner, speaking on BNN Bloomberg on Tuesday. “I think cybersecurity is a huge growth area and that was always their strength [with] their cyber network and the software. And I think what [CEO John Chen] has done in terms of changing the direction of this company from a smartphone maker into a cybersecurity [company] has been fantastic.”

BlackBerry’s share price has been skidding along through much of 2020 and has had trouble making up the losses suffered in the wider market turndown in February and March. Year-to-date, BB is down 20 per cent, while over the past three years the stock is now down 52 per cent.

“It’s been under-owned, it’s unloved and I don’t think it’s well-appreciated what an amazing pivot this company has done within the technology industry from a maker of phones to effectively a cybersecurity company. They’re getting very little credit for that, so it’s a buy. I like it.”

Over the past couple of years, investors have seemingly soured on BlackBerry’s comeback story, but Zechner thinks that’s the wrong perspective, as the company is much more sound than it was, say, five or ten years ago.

“The balance sheet is in good shape and they’re generating free cash flow. You look at the acquisitions they’ve done in the last couple of years and they’ve got the automobile as well and, obviously, what they’ve done with QNX,” Zechner said. “They suffered a little over the past couple of quarters with the slowdown in automobile production but this last quarter looked like it’s getting a little bit better.”

“They had some execution issues, but look at the valuation where it’s trading at 3x revenue, call it, or something like that with a decent balance sheet and cash generation,” he said.

Last month, BlackBerry delivered its fiscal second quarter 2021 results, which showed revenue up six per cent from a year earlier and a loss of $23 million or $0.04 per share compared to a loss of $44 million or $0.10 per share a year ago.

The company said it has seen an uptick in demand for its endpoint security offering, Spark, during the COVID-19-related work-from-home environment, while CEO John Chen said signs of recovery in the auto sector point to a return to a normal run rate for the company’ connected tech platform QNX.

“We are also seeing positive signs from our focus on the key components of our go-to-market strategy, including: strong channel partnerships, marketing, customer success and investing in new talent for our sales force,” said Chen in a press release.

Zechner said BlackBerry is a buy right now not only for its stronger fundamentals but because it’s a prime takeout target.

“First of all, obviously, someone will take a run at this thing at some point. It’s an easy fit-in target for one of the larger company,” Zechner said. “But even without that on a valuation basis I think it’s good.”

“It’s been under-owned, it’s unloved and I don’t think it’s well-appreciated what an amazing pivot this company has done within the technology industry from a maker of phones to effectively a cybersecurity company. They’re getting very little credit for that, so it’s a buy. I like it,” he said.

BlackBerry made some noise recently with the news that it would offer a 5G enabled phone, its first device in years. But some disagree with Zechner’s take on the ailing former Canadian tech behemoth.

Scotia Wealth fund manager Cole Kachur thinks the whole thing is a bad idea.

“The handset is interesting but how many people at this point are going to go back to that? I don’t think it’s as many as one might think. The iPhone and Google and all these other devices are pretty competitive in that front,” Kachur said in early September.

And Kachur said the other elements of BlackBerry still don’t add up to a green light for him.

“So then you just look at the company and for a long time it was software specifically for vehicles and that type of thing, [but] I just think there are so many other technology companies out there that are better,” Kachur argued. “Every time you invest in something there’s an opportunity cost of not investing in something else. So I think that, in my opinion, I would just move on from Blackberry and look at some of these cloud companies in the US and other tech companies.”