Blackline Safety Corp. (BLN:TSX.V; BLKLF:OTC) completed a CA$50 million-plus (CA$50M-plus) lease receivables securitization program with CWB Maxium Financial, and consequently garnered a target price increase from Echelon Capital Markets, reported one of the financial firm's analysts, Amr Ezzat, in an April 12 special situations report.
"The new purchase facility is expected to provide the company with enhanced financial flexibility and improved liquidity as management continues to execute its strategic plan and goal of sustained positive adjusted EBITDA exiting full-year 2023," Ezzat wrote.
Echelon raised its target price to CA$4 per share from CA$3.50, and the new figure compares to Blackline's current share price of about CA$2.42, noted Ezzat. From here, the projected potential return for investors is about 65%.
"We have increased confidence in [Blackline's] ability to fund itself and transition into a positive cash flow generator as it continues to improve its financial strength and liquidity in a nondilutive manner," wrote Ezzat.
Though the news warranted a share price increase, the market has not reacted much to it, noted Ezzat. As such, now is an opportune time to invest in Blackline. Echelon recommends it as a Speculative Buy.
Lease Program Popular
Blackline designs, develops and manufactures employee safety monitoring technology with a hardware-enabled software-as-a-service business model. Customers may purchase, lease, or for short-term projects, rent equipment.
Blackline's leasing program is popular with its customers, evidenced in its growth over the past three years, and, Ezzat pointed out, it "provides strong client retention."
The company currently has 270 lease contracts totaling CA$35.4M in gross receivables, with customers including ExxonMobil, Shell, ConocoPhillips, Keyera, Cenovus, and Pembina. Of the total, CA$12M worth consists of the total undiscounted net book value of the leased hardware.
The downside to Blackline's lease program, Ezzat pointed out, is it adversely impacts the timing of the cash flow from it.
He explained that typically "it takes one and a half to two years for a lease contract to catch up to a purchase agreement with service in terms of cash flows."
About the Arrangement
With this newly established partnership, CWB Maxium will purchase receivables generated through Blackline's leasing program. Blackline has 30 days after signing a new customer contract to decide whether to the related lease receivables to CWB.
The program "replaces Blackline's requirement to fully finance its customer lease obligations, with a new purchase facility based on lease purchases of up to CA$15M and US$35M for its safety wearables and area gas monitoring equipment," explained Ezzat.
The program is for one year, at which time CWB Maxium has the option of renewing it.
Benefits to Blackline
The securitization program should boost Blackline's free cash flow by about CA$18M in the remainder of 2023 and CA$15M next year, Echelon estimates.
Along with Blackline's strong cash balance of CA$23.5M at the end of Q1/23, the facility from CWB Maxium will afford the tech company greater financial flexibility and "immediate, nondilutive liquidity while lowering its overall cost of capital," wrote Ezzat.
This, in turn, will allow Blackline to promote leasing as an option more intensely to customers.
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Disclosures For Echelon Capital Markets, Blackline Safety Corp., April 12, 2023
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ANALYST CERTIFICATION
Company: Blackline Safety Corp. | BLN:TSX
I, Amr Ezzat, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly orindirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Important Disclosures:
During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer.
During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.
