Blackline Safety is undervalued, PI Financial says

Look for connected safety tech company Blackline Safety (Blackline Safety Stock Quote, Chart TSXV:BLN) to experience accelerated revenue growth, says PI Financial analyst David Kwan, who in an update on Monday maintained his “Buy” rating and $9.00 target for BLN.

Kwan took a tour of Blackline’s new head office and manufacturing facility in Calgary last week, calling the location a significant upgrade and having overall positive impact for the company and stock. The analyst notes that while the new office leaves room for growth, the company is expected to experience growth internationally, particularly in Europe and the US, where Blackline is looking to grow its sales team.

The analyst says the expansion efforts should help close the “significant gap” in terms of sales coverage in relation to its larger peers, while at the same time he notes that Blackline has a lack of brand awareness which is impeding its progress.

“With sales cycles shortening and customer interest and exposure increasing, we believe BLN is poised to see an acceleration in revenue growth, with a potential inflection point not too far away,” Kwan says.

“Despite some perception that BLN is a lumpy hardware company, recurring services revenue (contracted multi-year leases and monthly monitoring and cartridge fees) accounts for almost two-thirds of revenue,” he says.

“We expect the services revenue mix to increase, as new users are added and BLN rolls out a stronger and more robust analytics platform (already a key differentiator vs. its peers). In addition to being more predictable, services revenue also carries much higher gross margins (~65-70 per cent versus normalized product GM of ~20-30 per cent), so an increasing contribution from services revenue could bolster its valuation,” says Kwan.

The analyst is leaving his estimates unchanged at fiscal 2019 revenue and Adjusted EBITDA of $33.1 million and negative $2.2 million, respectively, and fiscal 2020 revenue and Adjusted EBITDA of $53.5 million and $8.4 million, respectively.