BLN Stock is undervalued, ATB Capital says

Ahead of its third quarter earnings, ATB Capital analyst Martin Toner thinks there is still money to be made on Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSX:BLN).

On September 14, before the market open, BLN will post its Q3, 2023 financials.

Toner, who expects third quarter revenue of $24.7-million, which would be a 33.1 per cent increase over the same period last year, outlined what he expects.

“The Company has made considerable progress on the top and bottom line in 2023, which we expect to continue in Q3/23,” the analyst wrote.  “In Q2, the Company beat on both the top and bottom line, along with strong metrics such as 38% y/y growth in annual recurring revenue (ARR) and record net dollar retention (NDR) of 118%. For the third consecutive quarter, investors reacted positively to the results, as shares have risen 38% since reporting Q2 results. Blackline also saw continued improvement in its gross margin, reaching 52% in Q2/FY23, its highest result since Q1/21. In its first quarter of availability, the Company received $8.3mm in funding from the initial tranche of contracts sold through its lease securitization program. The Company expects to incur ~$3mm in additional tranche liabilities in both Q3 and Q4. The Company continues to make progress on new contracts with large customers. We view these developments as positive, and we believe the business model will continue to improve by skewing toward high-margin, recurring revenue over time. We expect the focus on larger, long-term contracts to require longer lead times. We reduce our near-term product revenue estimates slightly to be conservative.”

In a research update to clients September 6, Toner maintained his “Outperform” rating and one-year price target of $4.50 on Blackline Safety, implying a return of 25 per cent at the time of publication.

The analyst expects that BLN will post an Adjusted EBITDA loss of $15.5-million on revenue of $101.2-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $5.7-million on a topline of $127.9-million the following year.

“Our 12-month price target is based on our discounted cash flow (DCF) model, using a weighted average cost of capital (WACC) of 13.0%,” Toner explained. “We use a terminal growth rate of 2.5%. Our DCF model implies a terminal Enterprise Value (EV)/Sales multiple of 1.3x in 2032, and our discounted terminal value of $234.4mm represents 67.1% of our total estimated EV of $349.2mm.”