After a rough second quarter, look for Blackline Safety (Blackline Safety Stock Quote, Chart, News TSXV:BLN) to rebound on strong organic growth, says PI Financial analyst David Kwan, who provided a corporate update to clients on Tuesday.
Kwan reasserted his “Buy” rating for the stock and increased his target price from $9.00 to $10.00, which at press time represented a projected 12-month return of 56.5 per cent.
Calgary-based Blackline Safety operates in the connected safety technology market with wearable tech, personal and area gas monitoring, cloud-connected software and data analytics. The company’s leading edge G7 product is the world’s first fully-connected (4G cellular/satellite) device combining lone worker safety and portable gas detection.
Ahead of Blackline’s third quarter fiscal 2020 results (year end October 31) on Thursday, September 24, Kwan is forecasting revenue of $9.2 million, compared to the consensus at $9.3 million, and an adjusted EBITDA loss of $2.0 million.
“After seeing revenue growth significantly slow last quarter (but still remaining positive, aided by 58 per cent year-over-year and 18 per cent quarter-over-quarter growth in recurring Services revenue) due to the impact of COVID, we believe the business steadily rebounded this quarter (we are forecasting revenue to grow 13 per cent year-over-year and 8 per cent quarter-over-quarter) with growth poised to return to historical levels (+50-60 per cent year-over-year, all organic) in a couple of quarters,” Kwan wrote.
Kwan said Blackline has several large deals in the near-term pipeline, particularly in the UK water and wastewater space along with one potential large customer win with a leading US-based specialty contractor with over 8,000 employees —that deal has yet to be press-released). Kwan said that customer is still in the pilot/trial phase but the results to date have been positive.
Speaking to Blackline’s cellular-connected G7 product, Kwan noted that competitor Industrial Scientific has just launched cellular connectivity through a retrofit to its Ventis Pro5. Kwan said it has taken competitors over three years to launch a similar connected portable gas detection product but Industrial Scientific’s result “still has work to do to catch up to BLN,” according to Kwan, who cited the materially higher cost, alert times that lag the G7 and current availability for shipping only in the US and Canada.
Looking ahead, Kwan is calling for Blackline to generate fiscal 2020 revenue and adjusted EBITDA of $37.9 million and negative $5.7 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $71.7 million and negative $3.8 million, respectively.
Earlier this month, Blackline closed on a new financing round for $36 million, issuing six million shares at $6.00 per share. BLN said the upsized private placement will go towards accelerating R&D initiatives, expanding its Vision Data Science offering, growing its S&M team and expanding new core verticals as well as pursuing strategic acquisitions.
On BLN’s financial position, Kwan said, “With well over $50 million in cash and essentially no debt, (potential) customers will have even more comfort in BLN’s financial strength (some competitors have raised concerns about this when trying to win business against BLN).”