Buddy Technologies Ltd (ASX: BUD)

A consumer durables & apparel company, which helps customers of any size “make every space smarter”. Buddy operates into two core businesses, which are commercial business and consumer business.

Financial and Operational Highlights: During the quarter ended 30 September 2021 (Q1FY22), the company recorded customer revenues of $6.3 million, reflecting a fall of 18% over Q1FY21 because of the shift in the timing of Amazon Prime Day. The company witnessed improvement in adjusted EBITDA loss to $879k against $1.9 million in Q1FY21. BUD raised $6.5 million (before costs) via placement of shares to sophisticated and institutional investors and subsequently rolled out an entitlement offer to existing shareholders and raised additional funds of $220k in the month of July 2021. The company also achieved major milestones, which include positive net cashflow of $1.3 million, and became EBITDA positive at $14k during the quarter.

Looking forward, the company is likely to resume growth and enter new retailers and markets in regions around the world. This would be backed by the recent reductions in force across the company, reduced expenses, healthy inventory levels and refreshed manufacturing agreements. The company is exposed to a risk arising from the stiff competition by peers in the industry in which it operates. In addition, its operational and financial performance could be impacted by the adverse movement in demand and supply of the products.

Stock Recommendation: The company recorded a growth of 39% in cash receipts to $7.8 million during Q1FY22, backed by the rising level of available inventory. As on 30 September 2021, the company had a cash balance of $2.1 million. The stock of BUD is trading at par to its 52-week low level of $0.014, offering a decent opportunity for accumulation. The stock of BUD has been corrected by ~65.11% in the past six months. On a TTM basis, the stock has an EV/Sales multiple of 2.6x as compared to the industry median (Technology) of 5.5x. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, improvement in EBITDA, capital raising, increasing cash receipts, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.014 as on 11 November 2021, 1:33 PM (GMT+10), Sydney, Eastern Australia.

BUD Weekly Technical Chart, Data Source: REFINITIV          

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

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