Blackline Safety keeps Buy rating with PI Financial

Supply chain issues are likely to impact Canadian connected safety tech company  Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSXV:BLN). That’s the scoop from PI Financial analyst Kris Thompson who maintained a “Buy” rating while reducing his target price from $11/share to $7.50/share for a projected return of 76.1 per cent in an update to clients on Wednesday.

Calgary-based Blackline Safety develops, manufactures and markets worker safety monitoring products and services in Canada, the United States and internationally.

Thompson’s latest report serves as a preview to Blackline’s upcoming second quarter financial results for the 2022 fiscal year, which are expected on June 14.

“We expect supply chain issues to temporarily reduce margins, lead to lower unit shipments, delay new product launches and result in revenue below our previous forecast,” said Thompson, whose reduced target price came from reduced estimates and an increased discount rate from 10 per cent to 12 per cent.

Of particular concern to Thompson is the fact that the company has not released any news of large orders in the quarter, prompting Thompson to lower his revenue estimate for the quarter from $19 million to $16.2 million, which reflects essentially flat hardware revenue compared to the seasonally weak first quarter along with a dip in the Product segment.

Elsewhere, Thompson now forecasts the company’s gross profit to be $7.3 million (previously $7.7 million), though the lower revenue projection results in a higher margin forecast of 44.9 per cent compared to the previous estimate of 40.9 per cent. Still on the margins, Thompson now forecasts a $6.4 million loss in adjusted EBITDA, which was previously projected at a $5.6 million loss.

Blackline recently made moves at the executive level, as Sean Stinson became the company’s new Chief Growth Officer, a change which Thompson believes might foreshadow some sales execution flaws.

Thompson also suspects Blackline may still be experiencing supply chain constraints, as the company acquired Swift Labs at the end of March, onboarding new design and engineering staff to integrate substitute components into exiting hardware products.

Thompson has also lowered his future financial projections on account of lower G7 unit sales and pushing projections for Blackline’s G6 units back to 2023. Thompson dropped his 2022 revenue forecast from $83.7 million to $72 million for a 33.3 per cent year-over-year increase, while his 2023 forecast was lowered from $129.4 million to $109.1 million for a potential year-over-year increase of 51.5 per cent.

Meanwhile, Thompson forecasts a slight compression in gross margin in 2022 from 48.3 per cent to 46.3 per cent ($33.3 million gross profit), before widening to a projected 51.5 per cent margin ($56.2 million gross profit) in 2023. Thompson has also revised his adjusted EBITDA forecast to a $20.3 million loss in 2022 (previously a $16.1 million loss), followed by a $0.1 million loss projection for 2023 after previously forecasting $10.5 million in positive adjusted EBITDA.

Blackline Safety’s stock price has slid to a 31.3 per cent loss in 2022, peaking early at $6.81/share on January 18 before starting its descent, dropping as low as $4.20/share on May 17.