Hot stock Blackline Safety has more upside, says Beacon

Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN) has been a hot stock so far in 2023, but shares are still well off their highs of two years ago. What’s up next? More gains for BLN, according to Beacon Securities analyst Gabriel Leung, who provided an update to clients on Wednesday where he reiterated a “Speculative Buy” rating, saying Blackline is on track to hit positive EBITDA by the end of the fiscal year.

Calgary-based Blackline Safety makes connected safety tech including wearable devices and area gas-monitoring equipment, software and analytics. The company reported its fiscal second quarter 2023 results on Wednesday for the period ended April 30, coming in with total revenue up 45 per cent year-over-year to $24.1 million. Service revenue of $12.9 million was up 46 per cent and Product revenue at $11.2 million was up 43 per cent.

By region, BLN saw sales growth of 65 per cent in the US, 24 per cent in Canada and 123 per cent for the Rest of World market.

“Through our revenue growth and sales mix, we were able to deliver 52% gross margins; a quarterly record of $12.5 million driven by record service margins of 75% all of which validates the opportunity for our business model to generate free cash flow in the near term,” said Cody Slater, CEO, in a press release. 

Leung honed in on Blackline’s EBITDA, which was negative $4.5 million compared to a $12.3 million loss a year ago and compared to a loss of $6.2 million over the previous quarter. The analyst also noted BLN’s backlog of undiscounted, non-cancellable finance lease contracts at the quarter’s end of $39.2 million, which was up from $35.4 million a quarter earlier. 

“Interest in BLN’s new G6 single gas detector remains strong, although the company noted that volume shipments would likely begin in fiscal Q4 (versus fiscal Q3) due to additional features that need to be added at clients’ requests,” Leung said.

Currently trading around the $2.80 mark, Blackline Safety is up about 60 per cent so far in 2023, while the stock was at a high of $9.00 in June, 2021.

With his update, Leung maintained a 12-month target price of $4.50 per share, which at press time represented a projected return of 58 per cent.

“Overall, we believe the FQ2 results are a step in the right direction. We reiterate our $4.50 target, which is based on 2.5x FY24e EV/Sales and Speculative Buy rating,” he said.