Blackline Safety $BLN - A Secretive Billionaire Has Been Loading Up

One of the investing strategies that has worked for me over the last few years is following smart money. Basically, watching what the most successful people in the world are investing in and following suit.


There is a small cap stock I have been watching called Blackline Safety that fits this bill and is definitely worth checking out. The ticker is $BLN. The reason being is that Edmonton Oilers owner, Daryl Katz, has been buying up Blackline Safety stock for years now through his private holdco, DAK Investments.


For those who may be unaware, Daryl Katz is a Canadian billionaire who made his fortune building up the Rexall chain of drugstores and selling it off to Mckesson in a multi-billion dollar deal. His investment into BLN is peculiar in the sense that it is the only publicly-traded investment that he has disclosed and he has also been very low-key about it, choosing to do so under his holdco, DAK investments. He is a pretty secretive guy, so not too many people are aware of this — but it definitely strikes me as peculiar that this is the only public investment that he made in recent times.

Back in 2015, the Edmonton Journal caught wind of this and posted an article but has been quiet ever since.


https://edmontonjournal.com/business/katz-company-boosts-stake-in-calgary-gps-tracking-firm


This August, Blackline announced another financing at $2.20 and DAK ended up taking down $12 million of it. A pretty big chunk. On top of that, he has also been actively buying on the open market, all the way up to $7.00, as shown in the SEDI filings.

Looking at a one-year chart, the stock has completely fallen off a cliff. Last year it was trading at the $7.00 mark, while today it is sitting around $1.60. Although, the stock does look like it is starting to consolidate in this range and Daryl has continued adding to his position the whole way down.


Now let's take a closer look at the fundamentals of the company.


What does Blackline Safety do?

Founded in 2004, Calgary-based Blackline Safety designs, makes and sells a range of safety devices and accompanying cloud-connected services to protect workers in the field, with the company having oriented itself as a hardware-enabled SaaS business allowing for real-time safety insights and proactive gas detection and safety management suite of products. Despite the availability of connected technology in handheld devices, only a small percentage of workers are connected. Blackline Safety's always-connected devices have profound implications for worker safety and workforce productivity.


While my interest in this company is more about Daryl and his continued investment, the fundamentals and path forward for BLN are actually starting to look pretty optimistic. The last few years they have been experiencing heavy losses due to research and development of the product, that is expected to change now that they have an established customer base and revenue streams.


Two weeks ago, an analyst with ATB Financial, Martin Toner, started Blackline off with an “Outperform” rating and $3.50 target price, good for a projected one-year return of 86.2 per cent at the time of publication.


He also had this to say about Blackline:

"The company has an attractive and improving business model. Gas detection hardware creates a sticky customer base and a software and service revenue stream that carries high gross margin. After experiencing significant losses in recent years pursuing product development and growth, Blackline Safety is in the process of rightsizing its cost structure. We believe cost reductions, net working capital improvements, and a price increase will rapidly improve the cash flow profile. We believe Blackline Safety has a multiple year growth opportunity and a high quality business model that will become profitable at scale and should be attractive to investors."


It is important to remember that this company does carry a significant amount of financial risk, given that their EBITDA is still deep in the red. The company posted revenue and adjusted EBITDA in 2021 of $54.3 million and negative $25.3 million, respectively, but Toner sees top and bottom line growth on the horizon, calling for revenue to move to $73.8 million in 2022, to $108.5 million for 2023 and to $133.9 million in 2024. On Adjusted EBITDA, the analyst is forecasting negative $45.5 million in 2022, negative $20.1 million in 2023 and then negative $6.7 million in 2024.


Toner argued that Blackline has fared much the same as a lot of smaller, early-stage tech-enabled companies in that it’s in the process of rightsizing its cost structure, but Toner believes cost reductions, net working capital improvements and a price increase will rapidly improve BLN’s cash flow profile.


In any case, it is comforting to know that there is a multi-billionaire who is bullish on the company, so even if they do run into cash problems again before they become profitable, it would not come as a surprise if he backstopped them again.


Inverse Head and Shoulder Pattern in the Chart


Although I am not a big believer in technical analysis, I will sometimes implement a technical analysis framework to help determine my entry and exits on trades.


On the BLN chart, I have noticed that there is a textbook inverse head and shoulders pattern forming , as seen below:

The inverse head and shoulders pattern is the most reliable trading pattern out there (83.44% success rate) and usually signals the end of a bear trend and subsequent reversal to the upside.


I am watching closely for a move back to $1.88 (neckline) in the short term and if the stock manages to breakout above that neckline, I would expect to see a measured move to around $2.18.


Let's see how things play out over the coming weeks.


-SmallCapInvestor