Blackline Safety receives a target drop from PI Financial

Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN) has shown a lot of life over the past couple of months, rising 45 per cent since the start of the year. But investors can expect more upside from here, according to PI Financial analyst Jason Zandberg, who kept a “Buy” rating on the stock in a Thursday note to clients.

Calgary-based Blackline Safety is a global leader in connected safety tech, with in-the-field, wearable gas monitoring devices coupled with software and data analytics. The company saw revenue climb 34 per cent in its recently announced fiscal 2022 year (ended October 31, 2022) to $72.9 million, while it also recently launched its latest product, the G6, for the gas detection market, completing its first shipment of orders to its North American and European customers during its fiscal fourth quarter 2022 and early Q1 2023.

Issuing a transfer of coverage in his report, Zandberg said Blackline offers a number of attractive features, including an experienced management team, an ESG focus in the employee safety market, a recurring service revenue model which continues to pick up steam and a recent pricing increase which combined with lower opex in recent quarters should speed up BLN’s transition to positive EBITDA, the analyst said.

“BLN sets itself apart from competitors with a product line that offers full connectivity and a full suite of devices with direct-to-cloud via 4G and satellite. BLN’s proven track record of its product connectivity drives average per-unit revenue,” Zandberg wrote.

Zandberg also sees some significant catalysts upcoming for Blackline Safety, noting that BLN’s stock price popped by 20 per cent after its Q4 earnings in late January. He attributed the reaction in part to the company’s strong topline growth and opex reduction.

“We expect investors to react positively if future earnings track toward positive EBITDA without materially sacrificing growth,” he said.

Other catalysts Zandberg noted were further contract announcements, the ramp-up in G6 sales (which Zandberg called “highly anticipated”) and an announcement of a financing vehicle to support Blackline’s monthly payment option to its customers.

With his “Buy” rating, Zandberg lowered his target price from $6.75 to $6.00 due to his new valuation model, which includes a reduced fiscal 2023 revenue forecast of $105 million (previously $114 million) and a lowered 2023 EBITDA estimate to a loss of $14.5 million (previously positive $11.4 million).

“This drop looks more severe than it actually is because our previous EBITDA estimate was calculated using BLN’s previous methodology of adding back some R&D expenses. Management has since eliminated this EBITDA calculation and now only adds back ‘non-recurring impact transactions.’ We expect Q4/23 EBITDA to be positive in our model— an accomplishment we believe the market will react positively toward,” Zandberg wrote.

At press time, Zandberg’s new $6.00 target represented a projected one-year return of 125 per cent.