Blink Charging: Correction Provides A Good Entry Opportunity

Summary:

• Initiating coverage on Blink Charging with a “Buy” rating, citing attractive valuation post-correction and a promising 24-month investment horizon.
• Higher EV adoption hinges on ramping up charging infrastructure; Blink’s presence in the U.S. and Europe positions it well for growth.
• Despite muted earnings and cash burn, cost-cutting measures and potential positive EBITDA by 2025 are key triggers for stock upside.
• Blink’s valuation metrics and analysts’ price targets indicate significant upside potential, making it a compelling buy at current levels.

Investment Overview

I am initiating coverage on Blink Charging (NASDAQ:BLNK) stock with a “Buy” rating and an investment horizon of 24 months. I believe that Blink stock is attractively valued after the recent correction, and it’s a good accumulation opportunity. This initiating coverage discusses the industry and company specific fundamental factors that back the bull thesis.

It’s worth noting that in mid-July, Blink stock was trading at $3.7. There has been a sharp correction of 46% from those levels with the stock currently trading at $2. The key reason for the downside was Blink Charging missing Q2 2024 earnings estimates. Further, the company’s guidance for 2024 is below the consensus outlook.

However, a relatively lower earnings guidance has been discounted in Blink stock. I believe that there are potential positives that can translate into the stock trending higher over the next 24 months.

In my view, the basis for the bull thesis is the fact that higher EV adoption is unlikely without a ramp-up in charging infrastructure. The adoption of EVs is lower than anticipated and macroeconomic headwinds have played spoilsport.

However, a survey from McKinsey indicates that many buyers are unwilling to consider EVs until the availability of chargers is equivalent to that of gas stations. Similarly, a S&P Global survey indicates that affordability is the biggest deterrent in purchasing an EV followed by the lack of charging infrastructure.

Therefore, big investments in the EV charging infrastructure are critical and companies are positioned to benefit even amidst intense competition. I must add here that EV companies are increasingly focusing on low-priced models. That has the potential to accelerate EV adoption if the charging infrastructure is ramped-up.

Coming back to Blink Charging, presence in the United States and Europe implies a big addressable market. To put things into perspective, The European Commission has set a target of 3.5 million charging points to be installed by 2030. To achieve this target, 8,000 public charging points must be installed per week.

For the United States, McKinsey estimates that there will be 9.5 million charging ports by 2025. This is likely to increase to 28 million by the end of the decade. The growth potential for the industry is therefore significant, and I believe that Blink Charging is positioned to survive and grow.

Fundamentals Likely to Improve

Driving top-line growth has been a lesser concern for emerging EV charging companies. The markets have factored the sustained cash burn in valuations. This is one of the reasons for Blink stock remaining depressed. I, however, believe that fundamentals are likely to improve over the next 12 to 24 months. This will have a positive impact on the company’s valuations.

For 2023, Blink Charging reported revenue growth of 130% on a year-on-year basis to $140.6 million. While revenue growth was stellar, Blink reported adjusted EBITDA loss of $57 million. It’s worth noting that when Q4 2023 results were reported, Blink had guided for positive adjusted EBITDA by December 2024. However, the company now believes that EBITDA break-even is likely in 2025. This is another reason for Blink stock trending lower.

For the first half of 2024, Blink reported revenue growth of 30% on a year-on-year basis to $70.8 million. Adjusted EBITDA losses also narrowed by 20% for the period. However, for the full year, Blink has guided for revenue of $150 million. On a year-on-year basis, growth is therefore likely to be muted.

While these headline numbers provide some insight, I believe that the following points are worth noting.

First – Between 2022 and the first half of 2024, the total operating expense as a percentage of revenue declined by 8,200 basis points. While the company has delayed the time-line for EBITDA break-even, there is a gradual narrowing of EBITDA level losses.

Second – In September 2024, the company announced reducing the global personnel count by 14%. This is likely to have an annualized cost-saving impact of $9 million and will contribute to significant margin improvement in 2025.

Third – In March 2024, Blink Charging announced the expansion of its manufacturing facility in Bowie, Maryland. The company expects to boost gross margin by enhancing vertical integration. It’s also worth noting that Blink currently produces around 15,000 EV charging units annually. The company is targeting to boost production to 50,000 units annually. Besides the potential impact on top-line growth, I expect economies of scale to drive margin expansion.

Fourth – For the first half of 2024, Blink reported product sales revenue growth of 25% on a year-on-year basis. For the same period, service revenue increased by 38%. The key components of service revenue include charging service revenue, network fees, and ride-sharing. As the number of charging ports deployed increases, the higher margin software and recurring service sales revenue will swell. This will have a positive impact on the EBITDA margin.

On the flip-side, Blink Charging reported a cash buffer of $73.9 million as of Q2 2024. In the last six months, the company’s cash buffer has declined by $47.8 million. With ongoing cash burn, it’s likely that Blink will dilute equity in the next 6 to 12 months. This dilution risk for the stock can be potentially mitigated if EBITDA losses continue to narrow in the coming quarters.

Possibility of Renewed Growth Acceleration

I mentioned earlier, that for 2024, Blink has guided for revenue of $150 million. On a year-on-year basis, revenue growth is expected at 7%. This implies a significant growth deceleration and has contributed to the decline in Blink stock.

I, however, believe that the company is positioned for renewed growth acceleration. The reasons for this view are as follows –

Blink Charging is targeting to boost its annual production to 50,000 charging units from the current level of 15,000 annually. Over the next few years, incremental production is likely to have a positive impact on growth.

In the United States, Blink Charging has the third largest EV charging network and the company derives 75% of its revenue from North America. Considering the growth potential in Europe, there is ample scope for penetration in the next five years. As manufacturing is ramped-up, it’s likely that international expansion will gain traction.

Macroeconomic headwinds have been a key reason for a slowdown in EV sales. This has also impacted EV charging companies. With expansionary monetary policies in the United States and Europe, it’s likely that EV sales will accelerate in 2026 and beyond. This will positively impact demand for EV charging units.

I mentioned earlier that high cost of EV ownership is among the top reasons for slow adoption. However, the market dynamics are changing, and EV companies are looking at low-cost models to drive mass adoption. I had discussed about the changing market dynamics in my recent coverage on Polestar Automotive (PSNY).

Blink Charging has a comprehensive product suite that includes L2 and DCFC chargers. Trends indicate that there is significant growth in DCFC chargers, considering the total public EV charging ports. In private EV charging, L2 remains dominant. With DCFC chargers giving a significant high range per hour of charging, I expect robust growth to sustain for DCFC public charging ports backed by federal and state incentives. Blink is well positioned to capitalize on this opportunity.

It’s interesting to note that the company operates an EV car-sharing and ride-sharing business through its wholly owned subsidiary, Blink Mobility. For FY2022 and FY2023, the ride-sharing business revenue was $1.3 million and $3.3 million respectively. If first half 2024 revenue is annualized, the segment is likely to report revenue of $4.6 million this year. It’s a small business that’s witnessing healthy growth. Over the next five years, there is potential for value creation from Blink Mobility. At some point of time, I see a potential business demerger.

In June 2024, Blink Charging received “In Process” designation that’s “granted by the Federal Risk and Authorization Management Program (FedRAMP®) for its EV charging solutions.” This takes the company closer to providing cloud-based EV charging solution across U.S. government. The federal agencies have a goal of transitioning federal fleets to all electric vehicles by 2035. The “In Process” designation is therefore an important step towards higher revenue contribution from the government segment.

Risk Factors

Based on the discussion, I believe that Blink Charging is positioned for growth and gradual EBITDA margin expansion. However, this view can potentially be impacted by few risk factors.

First, If the global downturn is steeper than expected, the return to accelerated growth for the EV industry will be delayed. This can prolong the company’s cash burn as a key factor is economies of scale and aggressive deployment of company-owned charging points.

Second, given the company’s guidance for positive adjusted EBITDA in 2025, I see another round of equity dilution. This is likely to have a negative impact on the stock. However, if growth accelerates and margin expansion is significant, I expect Blink stock to trend higher even after the potential dilution.

Third, industry competition remains intense. A Bloomberg article points out that “getting chargers on ground is only one of several challenges for operators.” There needs to be higher “reliability, efficiency and site-selection.” The author also believes that companies without “enough financial backing to see through low utilization periods will go out of business”

I, however, believe that Blink, as the third largest EV charging company in the United States, is positioned to survive competition and emerge stronger. Also, over the next 24 months, the company’s credit metrics are likely to improve significantly. However, the key factor is to achieve EBITDA break-even potentially in the second half of 2025.

Concluding Views

I believe that muted earnings are a temporary setback for Blink Charging. The company is focusing on cost-cutting, and potential positive EBITDA in 2025 is a trigger for stock upside. Additionally, as expansionary policies have a positive impact on the EV industry, Blink is likely to see growth acceleration. The deep correction therefore provides a good entry opportunity.

From a valuation perspective, Blink Charging trades at a forward EV/Sales of 0.94, which is at a discount to the sector median of 1.93. Further, a forward price-to-book of 0.79 is also at a discount to the sector median. This underscores my view that Blink stock is worth considering at current levels.

I must add that eight analysts have a 12-month forward median price target of $4. This would imply an upside of 105% from current levels. The most bearish price target is $2 and Blink stock trades around those levels. Therefore, I believe that the downside is capped, and the upside potential is significant.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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