Buddy Technologies Ltd.

BUD Details

Issue of Performance Shares: Buddy Technologies Ltd. (ASX: BUD) operates Buddy Ohm and Buddy Managed Services under the Commercial business segment. Under the Consumer business, BUD manufactures and trades in LIFX products in more than 100 countries. On 2 August 2021, BUD issued 1 million ordinary shares to Director, Paul William Russell due to the exercise of 1 million Performance rights under an employee share plan for zero consideration.

Financial Takeaways from Q4FY21:

• Growth in Revenue: BUD posted an increase of 21% YoY in revenue to $6.7 million inclusive of $158k of Government rebates and subsidies in Q4FY21. The accumulated stock position and higher advance customer orders placed during the Amazon Prime Day promotional period in Q4FY21 led to this revenue growth.
• Increase in Cash Receipts: BUD recorded $9.1 million of cash receipts (consisting of $158k of Government grant), up by 29% YoY in the June 2021 quarter.
• Lower Adjusted EBITDA Loss: The company reported a $1.9 million adjusted EBITDA loss in Q4FY21 versus $2.3 million in Q3FY21.
• Higher Cash Balance: BUD held $21 million cash on hand, up by 31% QoQ as of 30 June 2021.
• Positive Net Cashflow: The company delivered a positive net cashflow of $534,000 in Q4FY21.
• Debt Refinanced: BUD has been granted a debt waiver of US$3.02 million and will repay US$2.75 million to Eastfield in a full and final settlement. BUD has also restructured its debt facility with PFG (Buddy's secured lender), and if need, Eastfield will partly sponsor the payment to PFG.

 Total Revenue from FY17-FY21; (Analysis by Kalkine Group)

Post-Quarter Capital Raise:

• In July 2021, BUD raised $6.5 million (before costs) via a share placement to sophisticated and institutional investors to repay the US$1 million to Eastfield (the manufacturer) and fund working capital.
• Besides, the company rolled out an Entitlement Offer to existing shareholders to raise $10.0 million at the maximum. BUD will use funds to pay off further the Eastfield debt and the PFG Payment (Buddy's secured lender) and increase the working capital with the balance proceeds.

Key Risks:

• COVID-19 Impact: The company has witnessed the impact of COVID-19 leading to a shortage of semi- conductors, an increase in shipping cost and delays. BUD also witnessed changes in customer purchasing behaviour.
• Financial Risks: The company faces various risks such as credit risk, excess or tight liquidity, forex changes and an interest rate risk.

 Outlook: The company is focused on debt restructuring and repayments to flex the balance sheet. BUD is also focuses on growing online and direct-to-consumer sales based on the high market potential for online sales. The company is planning to roll out new products such as LIFX Switch US in 2HFY21.

Stock Recommendation: The stock of BUD gave a negative return of 56.97% in the past month and a negative return of 56.97% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.018 - $0.100. On a TTM basis, the stock of BUD is trading at a price-to-book value multiple of 2.4x lower than the industry (Technology) median of 6.0x, thus seems undervalued. Considering the current trading levels, increase in revenue and cash receipts, debt restructuring, and launch of new products in 2HFY21, valuation on a TTM basis, and associated risks of COVID-19, supply chain issues and shipping delays, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.0185, as on 10 August 2021, 11.26 AM (GMT+10), Sydney, Eastern Australia.

BUD Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision 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 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 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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