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Blackline Safety should get back to $5.00, says Echelon

It’s full steam ahead for Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN), according to Echelon Capital Markets analyst Amr Ezzat, who thinks the field safety monitoring tech company has a good runway of sustainable growth ahead of it. Ezzat provided an update on the company on Thursday where he asserted a “Buy” rating on the stock with a lowered $5.00 target price (previously $6.00).

Calgary-based Blackline Safety designs and manufactures worker safety monitoring tech and services, including wearable devices, personal and area gas monitoring and cloud-connected software and data analytics, with business in over 100 countries worldwide. 

Blackline announced on Wednesday the closing of a bought deal financing and concurrent private placement for aggregate gross proceeds of $24.9 million. The company issued 11.3 million shares at a price of $2.20 per share, with management saying the funds will go towards general and administrative purposes, sales and marketing, R&D and general corporate purposes.

“We are very pleased to have successfully completed an upsized bought deal and private placement, raising nearly $25 million, to enhance the financial stability of Blackline as we continue to adapt in a dynamic environment, while optimizing the efficiency of our operations for a new phase of sustainable growth. We remain confident in our ability to execute upon our goals and are appreciative of the continued support of our many shareholders,” said Cody Slater, CEO and Chair, in a press release.

Having participated as an underwriter in the financing round, Echelon Capital was on restriction until the deal closed, with Ezzat now issuing his “Buy” rating for the stock. Blackline shares rose sharply over the first stretch of the pandemic and then peaked at just over $9 in June, 2021. Since then there has been a marked drop-off, including a current year-to-date loss of about 67 per cent to bring BLN down to slightly above $2 per share.

But Ezzat sees better days ahead, with his new $5.00 target (lowered due to increased share count from the new financing) representing at press time a projected one-year return of 147.5 per cent.

“The financing allows the Company to withstand the elevated working capital drag and high operating costs it currently faces until its recently announced cost-cutting measures and price increases kick into gear and flow into the Company’s [profit and loss statement],” Ezzat wrote.

“Recall, Blackline announced last month a pricing increase on its hardware and services along with cost reduction measures. We believe BLN’s measures will allow it to improve its cash flows and ultimately the sustainability of its business model,” he said.

Ahead of Blackline’s third quarter financials due before market open on September 14, Ezzat said he is calling for sales of $17.8 million and an adjusted EBITDA loss of $6.1 million, where the consensus call from analysts is at $18.5 million and negative $6.0 million, respectively.

Those numbers compare to Blackline’s Q2 which saw revenue at $16.7 million, which was a 43 per cent year-over-year improvement and a six per cent sequential rise. On the Q2, Ezzat noted that product revenues growth was 72 per cent year-over-year to $7.9 million and it reflected the company’s expanded sales network and investment in its global sales team over the past year. 

“Sales of the new G7 EXO area monitor contributed ~$1.1 million during the quarter (~14 per cent of product sales). Service revenues growth (+24.0 per cent year-over-year to $8.8 million) was driven by new activations of the devices sold to end users over the past year for customers utilizing the Company’s monitoring, software, and data services,” he wrote.

Looking further ahead, Ezzat is forecasting Blackline to generate full 2022 revenue of $80.0 million compared to $54.3 million in 2021 and an adjusted EBITDA loss of $17.4 million compared to a loss of $9.9 million a year earlier. EPS is expected to go from negative $0.61 per share in 2021 to negative $0.79 per share in 2022, and Ezzat is estimating BLN’s EV/Sales multiple to go from 2.4x in 2020 and 1.7x in 2021 to 1.1x in 2022.

Last week, Blackline Safety provided an update on the deployment of equipment in its $2 million deal with Severn Trent Water in the UK for connected personal gas detection devices. Blackline said implementation is now underway, with the end goal of deploying its G7 detection devices to over 10,000 workers across six of the 12 UK water and wastewater authorities.

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