Kris Thompson of PI Financial is holding the line on Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSXV:BLN), maintaining his “Buy” rating and target price of $11.00/share for a projected return of 54.9 per cent in an update to clients on Tuesday.
Founded in 2004 and headquartered in Calgary, Blackline Safety develops, manufactures and markets worker safety monitoring products and services in Canada, the United States, Europe, Australia, New Zealand and internationally. The company makes the G7C and G7X wearable safety devices, the G7 EXO cloud-connected monitor and the G7 Dock.
Thompson’s latest analysis comes after Blackline closed a $40 million gross financing deal at $7.30/share, with Thompson called the event a positive for BLN, noting the deal adds growth capital to the company’s already strong balance sheet.
“The net proceeds will be used to further strengthen the Company’s financial position and allow it to accelerate its growth strategies and investments in sales, marketing and product commercialization, and for general corporate purposes,” Thompson said.
The company initially announced the financing on September 27, and it was conducted through a syndicate of underwriters co-led by PI Financial, among others.
All told, the company adds a further 5.5 million shares to the previous 54.6 million basic shares outstanding, with Thompson noting that the new issue was completed at a 7.8 per cent discount to the five-day VWAP ($7.92) and an 8.5 per cent discount off the 10-day WAP ($7.98), representing a healthy increase from Blackline’s last raise of $36 million at $6.00 per in September 2020.
“Investment fuels growth and we’ve already seen the returns that can come from advancing efforts in growing our product portfolio and expanding into new markets,” said Cody Slater, Blackline Safety’s CEO and Chair in the company’s October 19 press release. “This injection of capital builds upon the Company’s strong financial position and will help accelerate our strategies and investments in product commercialization, sales and marketing.”
After the new issue, Thompson notes that the company’s balance sheet shows $38 million in net proceeds, which will assist in the company’s growth plans. However, Thompson expects a temporary cash burn initiated in the company’s third quarter financial results ($33 million against $40 million available in the second quarter) to continue in the fourth quarter, with the intent of supporting large purchase orders like accounts receivable and inventory.
The company’s most recently quarterly financial results came on September 14, headlined by revenue of $12.7 million for the quarter ended July 31, marking a 35 per cent year-over-year increase and the company’s 18th consecutive quarter of year-over-year quarterly revenue growth. All told, Blackline’s product revenue grew 91 per cent from the prior year’s quarter, with recurring service revenue up 11 per cent to $7.4 million from $6.7 million, driven by a 19 per cent increase in software services revenue.
The company attributed service-level increases to recent G7 and G7 EXO product sales and strong retention and renewal activity, with a slight offset coming from customers who renewed fewer active devices due to workforce reductions.
In addition, the company’s service margin grew to 70 per cent and retained a gross margin of 13 per cent despite being negatively impacted by global supply chain shortages, causing increased costs of inputs for the company’s devices.
Thompson’s revenue projections for Blackline Safety show a company continuing to grow, with the projected $51 million in revenue for 2021 marking a potential year-over-year increase of 34.2 per cent, followed by an even bigger jump to $83 million in 2022, marking a potential year-over-year increase of 62.7 per cent.
However, Thompson also predicts the company’s adjusted EBITDA to dip into negative territory in 2021 at a loss of $8.9 million after being $5.5 million positive in 2020, with a further projection of a $2.1 million loss in play for 2022.
From a valuation perspective, Thompson sees the company’s EV/Revenue multiple dropping from the reported 9.3x in 2020 to 7x in 2021, followed by another projected drop to 4.3x in 2022; meanwhile, with the adjusted EBITDA turning negative in 2021, Thompson’s only EV/adjusted EBITDA multiple forecast is the reported 64.8x from 2020.
Overall, Thompson believes the company has a path to $90 million in annual revenue moving forward, subject to continuing COVID-19 risks.
“Order momentum is accelerating, sales cycles are shortening and order sizes are becoming larger as the product portfolio expands,” Thompson said. “As new product launches will likely suffer from some delays next year due to COVID-19 related supply chain issues, the company is now in an envious financial position to absorb any short-term lengthening of cash conversion cycles.”
Overall, Blackline Safety’s stock price has dropped 6.8 per cent for the year to date, though it experienced pronounced volatility throughout the summer months, peaking at $33.47/share on August 20.