Buddy Technologies Ltd

BUD Details

Buddy Technologies Ltd (ASX: BUD) is an IoT and cloud-based technology company that operates in two core businesses – Commercial Business and Consumer Business.

Result Performance (FY21 Ended 30 June 2021)

• The company reported total customer revenue of $28.77 million in FY21, down by 7% on the previous year, due to store closures, city lockdowns, supply chain disruptions and material increases in shipping costs and delays.
• Core operating expenses declined by 20% YoY to $16.05 million in FY21.
• Net loss for FY21 stood at $12.54 million, improved from the loss of $45.28 million in FY20, favourably impacted by the forgiveness of debt related to the acquisition of $15.47 million.

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

• On 30 November 2021, the company provided an update for October 2021, highlighting that the monthly revenues stood at A$3.4 million, an increase of 70% on September. Gross margins FY year to date (YTD), as of 31 October 2021, were 48.6%. Trade receivables in October were A$5.8 million, and inventories and prepayments were A$13.6 million. Cash receipts in October (of A$1.4 million) were impacted by customers extending their payment terms to holiday terms.
• In 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. There was an improvement in adjusted EBITDA loss to $879k against $1.9 million in Q1FY21. BUD also achieved significant milestones, including positive net cashflow of $1.3 million, and became EBITDA positive at $14k during the quarter.

Outlook:

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.

Key Risks:

The company is exposed to supply chain disruptions due to the COVID-19 pandemic and government-implemented restrictions. It operates in a competitive environment with sustained technology and consumer preferences changes. Failure in its part to address developments and competitive pressures would adversely impact its revenue and profitability. Further, it generates most of its revenue from the US. Thus, it led to the risk of changes in the exchange rate.

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation:

The stock of BUD is below the average of its 52-week price range of $0.011 - $0.065, offering a decent opportunity for accumulation. The stock has been corrected by ~76.74% in the past six months. On a TTM basis, the stock has an EV/Sales multiple of 2.3x as compared to the industry median (Technology) of 5.3x. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, current trading levels, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.01 per share, down 9.091% as of 21^st December 2021.

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 on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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 uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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