Research In Motion Ltd (RIMM)

Is it a Go or a No for Blackberry Limited (BBRY)

July 23rd, 2013 Posted by Company Research Report No Comment yet

BlackBerry Ltd or BBRY (formerly known as Research in Motion Limited (USA)) is a global leader in wireless innovation and developed mobile industry with the introduction of BlackBerry. Stories team had introduced Research in Motion Limited (USA) company research in the previous reports. This company research provides information about the company including its founder or how it started, history and development, its nature of the business, the people running and directing the company, how it makes money or in the industry,  suppliers and customers, workforce, and the company’s pay and working condition.

Please read the whole version of BBRY’s company research here:

http://totemtalk.com/research-in-motion-limited-usa-rimm/

Let us help you get to know more on current feedback and trends about the company that might help on your investing. Information was gathered from reliable sources that may include negative and positive news combined with our researcher’s interpretation of these data. For the latest news about Research in Motion Limited (USA), here is Cris’ company update:

http://totemtalk.com/blackberry-ltd-bbry-company-updates/

We all know the backbone of the company. We already met the people behind the company, the nature of their business. Now, let’s get ourselves updated with the financial status of the company. Rio, from our Numbers team, will reveal the story behind the digits.

 Liquidity & Solvency

Rio reviewed further the liquidity and solvency of BBRY for the last four quarters, Q3-2012, Q4-2012, Q1-2013 and Q2-2013 in comparison with its performance in the past four years. Here are the results:

bbryliq

The company’s current ratio was still above the standard of 2, there was no change in material amount. Its quick ratio’s trend was still the same which did not go below 1.8 on the latest four quarters. When we speak about the solvency ratio, it was quite very high in the last four years but reduced to a moderate level in the first three quarters but consistently increasing. However, it tremendously dipped down to 9 percent in the 2nd quarter of 2013. It needs close monitoring.

Explanation

BBRY is still financially healthy as far as its current resources are concerned. The company has the capacity to pay its obligations as its solvency ratio was above the standard rate of 20 percent except in the last quarter of 2013 which is too early to make a conclusion, as shown in the above table.

Financial Leverage

The company operates its business with very little borrowing. Debt ratio average is only 27 percent while debt to equity ratio was 37 percent.

Efficiency Ratios

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. Let’s get to meet each of these efficiency ratios. 

  • Inventory turnover ratio represents the number of times inventory is sold and restocked each year.
  • The receivable turnover ratio measures the number of days it takes a company to collect its credit accounts from its customers.
  • Payable turnover ratio is the number of times the company pays its obligation each period. This ratio measures how the company pays its suppliers in relation to the sales volume being transacted.
  • Asset turnover ratio shows how efficient the company’s total assets generate sales.

The table below tells us how efficient BBRY uses its resources in generating revenue.

Efficiency ratios show that BBRY was consistent to be efficient yearly and quarterly in generating sales revenue out of its resources as shown in the above table.  There was no abrupt change noted.

Income Statement

  • · Revenue showed progress every year with a growth of 35, 33 and -7 percent while declining from Q3-2012 to Q1-2013 but recover in Q2-2013 by growth of 15percent. Its gross profit average had a growth rate of 29, 34 and -25 percent from 2009 to 2012  while 5, 26 and -3 percent in Q3-2012 to Q2-2013.
  • And income after tax was also increasing yearly by  30, 39 and -66 percent while from Q2-2012 to Q2-2013 results were -1.04, 9.89 and -1.86 percent.

Expenses

Explanation

The majority of the expenses fall under the cost of revenue, which consumed a range of 54 to 71 percent on gross sales while operating expenses average from 2009 to 2012 was the only 23percent. However, in the last four quarters; 2nd quarter of 2012 to the 2nd quarter of 2013 it exceeded the total revenue of the company. It tells us that the company was not able to control its operating expenses.

Margin

  • Gross margin was slightly changed by an average of 2 percent both in yearly and quarterly data. After deducting operating and other related expenses it resulted in a negative 3 percent in the latest quarter. BBRY’s net margin did not even reach the standard of 20 percent in the past four year’s analysis.

Cash Flow

Cash Flow from Operating Activities

Cash flow from operating activities of BBRY  indicates positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. So, the company has sufficient funds for its operating activities.

Cash Flow from Investing Activities

Investing transactions generate cash outflows, such as capital expenditures for property, plant and equipment, business acquisitions and the purchase of investment securities while inflows come from the sale of assets, businesses and investment securities.  For BBRY, its investing cash flow shows negative results because of cash outflows exceeded cash inflows.

Cash Flow from Financing Activities

This refers to the company’s continuous borrowing and repayment of debt.  Similar to investing cash flow, the company’s cash outflow exceeded its cash inflows.

Free Cash Flow

BlackBerry Ltd

  • It shows positive results from 2010 to 2011 while negative in 2009 and 2012 however, it is consistent positive in the 3rd quarter of 2012 to the 2nd quarter of 2013.
  • Cash flow margin of BBRY from 3Q-2012 to 1Q-2013 was going up however it dropped to 21 percent in Q2-2013.

After getting all those results, I asked Rio for the overall view. Gladly she gave me her quick answer. Please join me on the conclusion below.

Conclusion:

“Results of my analysis show that BBRY is still financially healthy as far as its current resources are concerned. The company is debt- free and insolvent only in the last quarter of 2013. Income wise, the company is continuously generating income, however, it is operating expenses are uncontrolled which resulted in a negative profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and positive free cash flow”, Rio said.

We already know the financial health of BlackBerry Ltd from Rio’s report. How about the market value of the company? This is where Cris’ investment valuation report will bring us delight. She will inform us of the pricing status of the company. So, what are we waiting for? Let’s get to it.

The Investment in Enterprise Value on BlackBerry Ltd        

What is enterprise value? The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value (EV) is the present value of the entire company.  It measures the value of the productive assets that brought about its product or services, both equity capital (market capitalization) and debt capital.

BlackBerry Ltd

“In this evaluation, I believed the historical data is important and not just the current data.  As we can see in the table, it shows that the market capitalization dropped 75 percent in 2011. A dropped can be noticed again during 2012 and the trailing twelve months 2013 by 17 and 23, respectively. Further, the company has zero debt, thus the enterprise value was lesser of 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013 was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

 Margin of Safety

The margin of safety requires knowing when the buying price is low in absolute terms, rather than merely relative to the market as a whole. This formula is used to identify the difference between company value and price. Value investing is based on the assumption that two values are attached to all companies – the market price and the company’s business value or true value.

Now, let us reveal what the table would say about BBRY’s margin of safety.

BBRY MOS

The table tells us that the historical margin of safety averaged to 58 percent, while 2012 and ttm2013 have zero margins of safety. This means that the current margin of safety was insufficient and is not a good candidate for a buy position because there will be no safety in buying the stocks of BBRY.  This further implies that the true value of the stock is lesser than the market price.

Intrinsic Value

 

The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44.

For the annual growth, please see the table below:

BBRY IV

To summarize, the average growth of BlackBerry Ltd was favorable as well as the return on equity. However, the previous year 2012 and the trailing twelve months of 2013 showed an unfavorable outcome. Return on equity was negative 7 and 2 in 2012 and trailing twelve months, respectively.

In order to determine the trend in the true value of the stock of BBRY and the market price, Cris prepared a graph for our easy understanding.

BBRY Graph

As seen in the graph above, the true value line or the IV line was high during the period 2008 up to 2010. Then it dropped very steeply at 87, 93 and 135 percent from 2011 up to the trailing twelve months, respectively. It fell below the market value; this means there was a zero margin of safety in the current period, further it means that the stock price was trading above the true value of the stock.

Price to Earnings/Earning Per Share (P/E*EPS)             

BBRY PE EPS

The overall issue of P/E*EPS tells us that the stock of BBRY was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Enterprise Value (EV) / Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) or (EV/EBITDA)               

BBRY EV EBITDA

The table for EV/EBITDA indicates that it will take 5 years to recover the cost of purchasing the entire business of BBRY.  In other words, it will take 5 times the cash earnings of the company to cover the costs of purchasing the entire stock. 

In the earlier part of this report, Rio gave us a summary of financial health. This time Cris will do the honor of sharing us the wrapped up details of her report.

Summary:

BBRY’s market capitalization dropped 75 percent in 2011. While in 2012 and the trailing twelve months 2013, it dropped again by 17 and 23 percent, respectively. Further, the company has zero debt, thus the enterprise value was lesser by 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013, was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

Margin of Safety

The historical margin of safety averaged 58 percent, while 2012 and ttm2013 have zero margins of safety.  This further implies that the true value of the stock is lesser than the market price. The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44. The ROE was negative 7 and 2 for 2012 and trailing twelve months, respectively.

Further, the relative value indicates that the overall issue of P/E*EPS shows that the stock of BBRY was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Furthermore, the EV/EBITDA indicates that it will take 5 years to recoup the cost of buying the entire business of BBRY.  In other words, it will take 5 times the cash earnings of the company to recover the costs of purchasing the entire company.

Overall

Overall view, it shows a frustrating result in the market value of the company as well as the deteriorating growth in the current periods. The downfall of BBRY’s price was very steep and climbing to the top might be hard, as the company has a long way to go to make a comeback to its former condition. Although the price seems undervalued considering the relative valuation, intrinsic value of the company reveals the true value of the stock, thus indicating that the stock is trading above its true value. Cris concluded, “Since the company is still in its early phase of transformation, I, therefore, recommend a SELL on the stock of BlackBerry Ltd.”

Researched and Written by Meriam, Karla, Rio, and Cris

Interested to learn more about the company? Here’s company research to know more of its background and history; and investment valuation for the pricing.

No comments yet. You should be kind and add one!

Leave a Reply

Your email address will not be published.This is a required field!

You may use these HTML tags and attributes:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Note:

Research Reports can be found under the company tab.