ATB Capital launches coverage of Blackline Safety with an Outperform rating

ATB Capital Markets is betting on black with its coverage initiation on Sunday of gas detection hardware company Blackline Safety Corp (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN). ATB analyst Martin Toner started Blackline off with an “Outperform” rating and $3.50 target price, good for a projected one-year return of 86.2 per cent at the time of publication.

Founded in 2004, Calgary-based Blackline Safety designs, makes and sells a range of safety devices and accompanying cloud-connected services to protect workers in the field, with the company having oriented itself as a hardware-enabled SaaS business allowing for real-time safety insights and proactive gas detection and safety management suite of products.

The company posted revenue and adjusted EBITDA in 2021 of $54.3 million and negative $25.3 million, respectively, but Toner sees top and bottom line growth on the horizon, calling for revenue to move to $73.8 million in 2022, to $108.5 million for 2023 and to $133.9 million in 2024. On Adjusted EBITDA, the analyst is forecasting negative $45.5 million in 2022, negative $20.1 million in 2023 and then negative $6.7 million in 2024.

Toner said Blackline’s business model is attractive in that gas detection hardware creates a sticky customer base while the company’s software and service revenue stream comes with a high gross margin.

“Blackline Safety is the technological leader in connected gas detection devices, an industry undergoing technology-enabled transformation. We expect a rapidly growing total addressable market (TAM), a unique opportunity for share gain, a strong value proposition for customers, and a superior business model for shareholders,” Toner said.

On the macro level, Toner said Blackline is in the middle of a generational change in the way companies keep workers safe, with connected tech making up a central tenet of that transformation. Toner said that while hardware is a competitive space, Blackline’s advantage is in its associated software and services, with the company’s ability to onboard big companies like Amazon and the Coca-Cola Company as evidence.

Toner argued that Blackline has fared much the same as a lot of smaller, early-stage tech-enabled companies in that it’s in the process of rightsizing its cost structure, but Toner believes cost reductions, net working capital improvements and a price increase will rapidly improve BLN’s cash flow profile.

“Blackline has burned $70.6 million in cash since the start of FY2021, stretching the balance sheet and forcing a capital raise at an inconvenient time. In that time, the Company has invested in an important growth driver, the G6, and the current share price represents an opportunity, in our opinion,” Toner wrote.