Buy Blackline Safety ahead of Q1 results, ATB says

Ahead of this week’s release of its first quarter results, ATB Capital analyst Martin Toner thinks Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSX:BLN) stock remains undervalued.

On March 14, before the market open, BLN will report its Q1, 2024 results.

Toner says he expects Blackline will post revenue of $26.8-million in the quarter, which would be a 27.6 per cent increase over the same period last year. He also expects improvements in Gross Margin, which he sees climbing to 57.5 per cent.

“Blackline reports Q1/24 results on March 14 before market open, with the conference call starting at 11:00 a.m. Last quarter, BLN capped off a strong FY23 by reporting Q4 total revenue growth of 36% y/y, including service growth of 38%, as the Company hit the $100mm annual revenue milestone for the first time. The Company experienced strong revenue growth while improving the bottom line, as Q4/23 adjusted EBITDA margin of negative 5% represented an improvement of 82% y/y. As the Company begins FY24, Blackline enters with strong topline momentum and levers to grow its bottom line. The company articulated a goal to become a Rule of 40 company by year end 2024. We believe this indicates management confidence is sustaining growth rates while continuing to improve margins. Q1 represents the slowest of the year, and we expect margins and hardware revenue to step back sequentially in Q1, but show improvement on a y/y basis. We continue to believe that BLN’s 2.2 NTM P/S multiple undervalues the company’s de-risked balance sheet, future growth and long-term margin potential,” the analyst wrote.

In a research update to clients March 11, Toner maintained his “Outperform” rating and one-year price target of $5.50 on BLN, implying a return of 27.9 per cent at the time of publication.

The analyst thinks BLN will post Adjusted EBITDA of $1.8-million on revenue of $129.4-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $13.4-million on a topline of $163.6-million in fiscal 2015.

“We maintain our 12-month price target of C$5.50 and our Outperform rating based on our return to target of 27.9%. 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%. 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 $0.26bn represents 63.5% of our total estimated EV of $0.41bn,” Toner concluded.