Buddy Technologies Limited

BUD Details

A Quick Look at Q2FY22 Key Aspects: Buddy Technologies Limited (ASX: BUD) is a consumer durables & apparel company, which helps customers of any size “make every space smarter”. BUD operates into two core businesses: commercial and consumer businesses.

• Customer Revenues Highlights: The company reported customer revenues of $8 million in 2QFY22, reflecting a decrease of ~16% from the prior year. However, on a quarterly basis, the company saw a 27% increase in customer revenues, thanks to holiday seasonality and promotional periods (including Halloween, Black Friday, Thanksgiving, Cyber Monday, Christmas, and Boxing Day sales).
• A Turnaround in EBITDA: The company reported adjusted EBITDA of $91k in 2QFY22, compared to the year-ago EBITDA loss of $1 million.
• Rise in Gross Margins: During the quarter, the company reported a gross margin of 43.1%, a massive improvement from FY21 margins of 25.8%.
• Liquidity Position: The company ended the quarter with cash on hand of ~$1.3 million, with current assets of $17.4 million. Notably, cash receipts during the quarter stood at $6.6 million, depicting a decline of 16% and 21%, QoQ and YoY, respectively, owing to fluctuations in customer payment terms executed by retailers during the holiday quarter.

Operating Cash Outflows Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to disruptions across the global supply chain, especially amongst China's semiconductor suppliers. Due to significant operations in the United States, the UK, and Europe, the company is exposed to foreign currency risk.

Outlook: In FY22, the company is focused on growing its markets worldwide and manufacturing its products more cost-efficiently. The company is actively working to maximise its sell-in and sell-through across its retail partners and its online channels. Further, the launch of LIFX Smart Switch 2-button glass will aid the company to grow its margin, diversify its supply chain and grow its business into trade and wholesale channels.

Stock Recommendation: The stock of BUD is trading at par to its 52-weeks' low level of $0.009. The stock of BUD gave a negative return of ~39.99% in the past one month and a negative return of ~52.63% in the past six months.  On a TTM basis, the stock of BUD is trading at an EV/Sales multiple of 2.00x, lower than the industry median (Software & IT Services) of 5.6x. Considering the current trading levels, valuation on TTM basis, decent performance in Q2FY22, robust sales of LIFX products, geographical expansion, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.009, as on 8 February 2022, 12:30 PM (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 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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