As BlackBerry explores strategic options, Evercore Partners’s Mark McKechnie raised his rating on the shares to Equal Weight from Underweight, writing that the stock has now become “a special situation.”
BlackBerry shares have added to gains that hung around 5% during most of the session, currently up $1.02, or almost 11%, at $10.78.
The firm thinks a buyer could see value in BlackBerry’s network operations centers, and end up better monetizing them by creating an “open solution” that supports Android and iOS.
The sum of BlackBerry’s patents, cash and services business add up to $10 per share, he thinks:
The biggest stores of value in our view include 1) BBRY’s patent portfolio of ~11,000 patents, which we believe could fetch ~$1.9B or $3.58 per share in a sale, 2) BBRY’s declining BES/NOC platform with ~72M subscribers currently paying ~$3.60 per month in service fees which we assign a terminal value of $1.2B or $2.32 per share based on 30M die-hard subs generating ~$162M of EBITDA, and 3) net cash of $2.2B or $4.13 per share.
We have long argued that an “open” approach to BBRY’s recurring subscriber business in which they support Apple and Android could salvage the value, but the focus on the BB10 hardware solutions has cost the company valuable time as third party open MDM solutions have gained traction.
It’s possible either a private equity shop or a strategic buyer could better monetize the subscriber business:
Our terminal valuation analysis contemplates 30M (down from ~ 72M currently) die-hard Blackberry subscribers paying $3 per month for $1.1B in annual sales at 15% operating margins. We could see a buyer taking a more optimistic view and leading to a potentially higher bid through a break from BBRY’s hardware business and thus lead to successful deployment of an open solution which supports both Google’s Android and Apple devices.
We note every 10M users versus our 30M forecast could add ~ $0.75-$1.00 in valuation at a 10x multiple on taxed earnings. In our view, the company must move quickly however as third party MDM (Mobile Device Management) solutions from private companies AirWatch, Mobile Iron, as well as Citrix Systems – covered by EVR software analyst Kirk Materne) are rapidly displacing BBRY in the enterprise.
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