Blackline Safety has a 42.5 per cent upside, says PI Financial

Expect big things ahead from Blackline Safety Corp. (BlackLine Safety Stock Quote, Chart TSXV:BLN), says analyst David Kwan of PI Financial, whose earnings update on Monday reiterated his “Buy” rating and $7.75 target.

Connected gas detection tech company Blackline Safety released its fourth quarter and year end financials for the period ended October 31, 2018, showing 30 per cent year-over-year increase in revenue.

“Fiscal 2018 was our first complete year of promoting our G7 connected safety solutions to a global base of industries and businesses with diverse requirements,” said Cody Slater, Blackline CEO and Chairman, in a press release. “Blackline’s new G7 portfolio drove growth throughout the year, seeing the Company generate total revenue 53 per cent above the prior year. More importantly, looking at our recurring service revenue, we open 2019 with a run-rate of over $14.4 million — equivalent to 81 per cent of last year’s total revenue.”

Kwan is taking the quarterly results as a positive for Blackline, with the Q4 revenue of $5.5 million coming in line with his estimate (but ahead of the consensus $4.6 million) while the Adj. EBITDA loss of $1.9 million came in below his estimated loss of $1.1 million and the consensus $1.3 million.

The analyst pointed to upticks in the company’s revenue stemming from the US and Europe while at the same time attributing the larger than expected Adj. EBITDA loss to higher than expected SG&A expenses.

“BLN is well positioned to continue aggressively growing its business (organically), as it leverages its pristine cashed-up balance sheet and market leading G7 solution that has a multi-year lead time advantage versus its competitors. The momentum is continuing to build and we believe investors will be rewarded, as BLN’s proven management team successfully executes on its high growth strategy,” says Kwan.

The analyst also noted that while BLN’s small- to medium-sized purchase orders are still driving much of its revenue growth, he’s seeing a recent pickup in the company’s large customer wins (over $1 million), with many more expected going forward.

“Our FY19 revenue estimate remains unchanged at $33.1 million but our Adj. EBITDA increases to $0.4 million (was ($0.3 million)), primarily due a more moderate assumed growth rate in SG&A. We continue to expect BLN to achieve [positive] Adj. EBITDA in mid- to second half of FY19,” he said.

The analyst is introducing fiscal 2020 estimates, forecasting revenue of $50.2 million and Adj. EBITDA of $7.9 million. Kwan’s target price of $7.75 represents a projected 12-month return of 42.5 per cent at the time of publication.