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BlackBerry Ltd (BBRY) Valuation Lowered Based On SOTP

Will BlackBerry Ltd BBRY be able to stem the tide of fleeing customers?

Problems continue for BlackBerry Ltd (BBRY - Get Report) (BB) as the company prepares to release its latest quarterly earnings report later this week. Analysts at Societe Generale continue to rate the company as a Hold, but they have lowered their per-share valuation after switching from a DCF-based methodology to a sum of the parts methodology.

Expectations for BBRY’s report

When BlackBerry Ltd (BBRY - Get Report) (BB) releases its report on Dec. 20, Analysts Andy Perkins and Peter Knox are expecting to see sales of $1.57 million. That’s slightly lower than consensus estimates of $1.58 million. They’re also expecting to see an operating loss margin of 15 percent, which is a little better than consensus of a loss margin of 18%.

In losses per share, they’re predicting 35 cents, compared to consensus estimates of 42 cents per share in losses. The analysts are projecting 3.6 million handsets sold during the most recently completed quarter. That’s a 50% decline compared to the year before and a 3% sequential decline.

Uncertainty around BBRY’s future remains

At this point it’s anyone’s guess what will happen to BlackBerry Ltd (BBRY - Get Report) (BB). The Societe General team believes the company can’t continue on “in its current form.” They note that the failed acquisition by Fairfax Financial only added uncertainty to the company’s future as it continues to lose share of the market.

BlackBerry’s share dropped to 3.6% during October in the U.S., compared to its share of more than 40% in 2009. In addition, major customers like the U.S. Department of Defense and Pfizer Inc. (PFE - Get Report) are said to be looking into alternative mobile device makers.

Valuing BlackBerry shares

The analysts now place a value of $6 per share, which is $1 less than their previous valuation. They switched to a sum of the parts methodology because of the continuing uncertainty regarding BlackBerry Ltd (BBRY - Get Report) (BB)’s future. They’re valuing the company’s cash “after streamlining expenses” at $2 per share and BlackBerry’s intellectual property at $1.30 per share. They see the company’s subscriber services division as being worth $2.70 per share.

The analysts said the biggest uncertainty in this valuation is how much BlackBerry’s patent portfolio is really worth. In terms of earnings surprises, they said a positive surprise in the number of handsets sold in the most recently completed quarter would provide upside to BlackBerry. However, when the company releases full-year results on March 28, they said worse-than-expected cash burn would cut the company’s asset value.

-By Michelle Jones

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