Volvo XC90: another win for SEE

The evidence is stacking up that Seeing Machines has won Volvo in the teeth of opposition from its Swedish rival Smart Eye.

Read this article on the Volvo XC90 and note the way it describes how the DMS system will work. Congrats to Nick DiFiiore and his team on this one. All we need now is the RNS.

I believe the delay in announcing auto OEM contract news is due to their being re-scoped and enlarged by car manufacturers in the light of EU legislation that will mandate DMS in all new type cars from 2022.

Of course, fund managers have been getting the inside track on developments this week so I am optimistic we will get some big buys.

Still, rather than a soft-focus video, private investors also deserve to meet the management. Hey, SEE, how about organising a webinar and answering some tough questions from people who’ve invested their hard earned money over a number of years? Or better still, call another meeting in London.

Certainly, in his most recent interview the new CEO, Paul McGlone, seemed very confident. He can certainly talk the talk and it is my hope he will also walk the walk over the next 6 months. Time will tell.

The writer holds shares in Seeing Machines.

Long live the King of the DMS

In a recent note from Redeye, its analyst commented that whoever wins VW or Toyota in the second half of the year will be ‘King of DMS’. He seems to think it may be Smart Eye, whereas I’m convinced it will be Seeing Machines that wins both.

I also believe Smart Eye will soon suffer the embarrassment of Volvo choosing Seeing Machines for its 2021 flagship XC90’s DMS.

Certainly, after a successful fundraise Smart Eye looks ‘strong and stable’ but as the British electorate knows only too well, the truth will out. Propaganda eventually has to give way to reality. That time has arrived for Theresa May and will very shortly arrive for Smart Eye. Tick tock.

Enough of analogies, Smart Eye even as number 2 will have its share of the cake that SEE doesn’t want. China is a big market and I wish it well there. I just hope Chinese consumers don’t take a ride in Byton’s M-Byte when it launches later this year — it features SEE’s superior DMS.

I also believe that the BMW X5 and Audi A8 will revert to Seeing Machines – for as the Beatle song Drive My Car, could have said:  ‘Using a DMS at up to 37mph is all very fine, but I can show you a better time’.

In the auto world premium means ‘the best’. In a very competitive market Audi and BMW can’t afford to look like chumps v. Mercedes when it comes to safety. That is why auto OEMs are telling, yes telling, Tier 1s to use Seeing Machines technology.

Some will naturally dispute what I’m saying. Still, let those with ears to hear, hear.

The writer holds stock in Seeing Machines.

Silver lining in a cloud of investor misery?

Following today’s news that Seeing Machines is having a deeply discounted  conditional placing and subscription to raise £27.5m, the management of the company seems to have lost both the goodwill and trust of many private investors. 

Indeed, the fact SEE couldn’t get even get a placing with existing institutional investors away at 5p tells you a lot.

It’s quite frankly shocking that the company had to offer shares at 3p in order to raise cash and follows a long series of fleet and train related mishaps that Chris Grayling would be proud of.

The only silver lining I can see is that with the expected OEM wins still to be announced it becomes a sitting duck for an opportunistic bid. My sources tell me that last year, after numerous ‘discussions’, it came close to being snapped up by Bosch for around 17p. Well, I dare say, it is still available at a knock-down price.

Anyone want a to buy a company with great tech but poor management? 10p? Anyone? 7.5p?

UPDATE

For those investors despairing tonight, I’ve some hope. Ironically it comes from house broker Cenkos who put out a note today. Analyst Jean-Marc Bunce clearly cares about his reputation and though he lowered the price target to 9p, Bunce can’t help but admit on page 15:

“Strategic value is significant – 39p at 8% discount rate

To demonstrate the significant value in the increasingly visible future cash flows from Seeing Machines’ automotive license fees, we note that a large organisation with a market average Beta of 1 would have an equity cost of capital of 8%. At an 8% cost of capital our valuation for Seeing Machines rises to 39p and we note the weighted average cost of capital for a large corporate would likely be even lower through debt financing.”

In fact, the more times I read this note the more I get the sense that it is setting out a case for SEE being sold at a particular price. We’ll see.

The writer holds stock in SEE.

eServGlobal: M&A thoughts

FinnCap, the house broker for eServGlobal, has published a note highlighting the accelerating pace of M&A activity in the payments industry and its implications for the AIM-listed minnow.

There have been 3 big mergers so far this year in the payments industry:

  •   Fiserv’s acquisition of payments processor First Data for $22bn;
  •   Visa’s acquisition of Earthport for £200m; and
  •   Worldpay acquisition of FIS for $43bn.

In addition, after missing out in the Earthport auction, Mastercard has bought Transfast. This prompted EservGlobal to issue an RNS today in which it stated: “Transfast is a network partner of HomeSend, offering reach and connectivity principally into Africa and Latin America, together with foreign exchange and ancillary services. Network relationships are a critical element of HomeSend’s services and HomeSend continues to grow these partnerships through several regional network partners, such as Transfast, together with HomeSend’s own direct connections, to deliver across multiple markets and channels.”

FinnCap Director of Research Lorne Daniel explained: “After missing out in the Earthport auction, Mastercard has bought Transfast. We see this as augmenting not replacing HomeSend. The Transfast acquisition will augment Mastercard’s well-defined and established strategy to dominate global payments with a range of solutions. Purchasing one of the technologies underlying Mastercard Send gives greater control, adding capacity as well as reach.”

Daniel noted: “We continue to expect Mastercard to seek full control (from its current 64.31%) of HomeSend, which it continues to flag as a key platform to dominate international Account-to-Account and Business-to-Business transfers. Indeed, the recent surge in M&A activity in the segment should hasten that move.”

Daniel currently has a target price of 20p on the share.

The writer holds stock in eServGlobal.

Is it time to React?

React Group is a tiny AIM-listed company that has a chequered history and recently decided to concentrate on specialist cleaning. It is also a sub penny stock. So far, so bad.

The good news is that star fund manager David Newton has a chunky 15.74% holding and the company’s management has been strengthened with the addition of a Non-Executive Director Michael Joyce, former CFO at InterQuest.

Joyce and his wife have recently bought stock in the company (management of SEE, please note) which has helped spark this week’s increase in the share price.

Mark Braund has also been brought in as an operational and strategic advisor. He is a former CEO of InterQuest and also ex-CEO of Redstone Connect.

I briefly held this stock about 3 years ago when Adam Reynolds (the cash shell king) was a holder. He has since moved on and I feel that with a clearer strategy the company is now gearing up for a period of accelerated growth.

It made a loss for the year ended 30 September of £1.93m but the net cash outflow from operations was far less at £625k, with turnover up 25% at £3.3m. If the business continues on its current growth trajectory it could easily multi-bag from here.

At this stage it has be regarded as a fairly speculative investment and is certainly not one to sink your pension pot into. Yet, it is certainly worthy of further investigation.

At the time of writing its share price was 0.27p.

The writer holds stock in React.

Seeing Machines wins strategic FCA contract estimated at US$200m

Seeing Machines has won the contract to supply US carmaker Fiat Chrysler (FCA) with its Fovio chip Driver Monitoring System, as predicted here months ago.

Ostensibly it is a US$6m contract (for Jeep or Ram, I believe) but as we all know the value is likely to end up far higher as DMS is swiftly rolled out across all its various car marques and models.

My estimate for the eventual worth of this deal is nearer to the hundreds of millions of US dollars. FCA produces 4m cars a year. Within 3 years I expect the Fovio chip to be in approximately 50% of them, say 2m cars. At US$20 a pop (volume discount from US$30) that is at least $40m a year. EVERY YEAR from 2022!

As the lifetime of a model is 5 years, my belief is that this strategic contract should end up being worth at least US$200m.

Clearly FCA couldn’t afford to let Ford with its F-150 pick-up outcompete in the premium DMS arena. They just had to have it.

I feel a twinge of sympathy for Smart Eye who at one stage hoped to win FCA. Indeed, as i believe the Tier 1 is Aptiv Seeing Machines are rubbing salt into its wounds — it is the equivalent of your partner running off with your worst enemy.

Unfortunately, Smart Eye don’t have an automotive grade chip, although they are trying to develop one. Unfortunately for them, Seeing Machines has already passed the finishing line where the US premium auto OEMs are concerned. After all it has now bagged FCA, Ford and GM.

In addition the next race has nearly been won in Europe where it will win VW to add to BMW and Mercedes and I don’t expect the result to be any different in Japan (Toyota and Honda are coming I believe).

This latest win brings an eventual bid for Seeing Machines much, much closer. So far as DMS is concerned SEE really is the next Mobileye. Indeed, I imagine the calculations I’ve roughed out will be replicated by many chip companies.

The writer holds stock in Seeing Machines.

SEE is worth over £1 a share

Ridiculous as it might sound, when Seeing Machines is currently 4p a share, I believe its intrinsic value is even now well over £1 a share. This is because it will continue to dominate the automotive driver monitoring niche for the next few years at least.

Anyway, here’s my thinking in a nutshell. I’ve based my valuation on auto alone as I think that is the real driver of value with SEE (excuse that pun!).

In his note on January 16th Jean-Marc Bunce, analyst at house broker Cenkos, revealed: “Seeing Machines has a far more conservative approach to announcing automotive revenue visibility that its competitors”.

In the note he pointed out details on the deals already done. I’ve outlined my thoughts on them here:

  • OEM 1 [General Motors] — Supercruise will be rolled out to entire range of Cadillacs (some 350,000 cars by end 2021). Thereafter, I’d expect it to go into most of GMs 10m cars.
  • OEM 2 [Mercedes] — Programme is just for its flagship S Class saloon car, equivalent to 5% of the total cars produced.
  • OEM 3 [BMW] — stated minimum contract value of USS$25m. However, BMW sells 2.3m cars a year and Fovio chip will be rolled out across the entire group.
  • OEM 4 [Ford] — F-150 is a phenomenal earner for Ford and last year Adam Jonas, the famous Morgan Stanley analyst, stated the franchise could be worth more than Ford itself. It has been estimated that Ford will is planning to produce around 1m a year of these in the future. I expect Ford will also roll it out across other car models in due course. Note that Ford produced 6.6m cars in 2017.
  • OEM 5 [Byton] — relatively small volumes but I’d expect them to grow and other premium electric cars to put Fovio into their offerings.

Imminent wins

By the end of this financial year I expect SEE to have announced wins with FCA, Volkswagen and Volvo with Toyota and probably Honda following shortly after.

Alternatively, you can gain a sense of the value of Seeing Machines auto business by looking at the macro picture. Assume 70% of cars have DMS by 2022, and SEE have at least 50% of that market, with estimated global car volumes of around 110m in 2022. If SEE received US$20 a car (blended average of Fovio selling at US$30 a chip and software at US$10) that would deliver revenues of approximately US$770m a year.

If Gen 2 Fovio can maintain pricing at US$30 a car, revenues would be nearer US$1.1bn a year. EVERY YEAR!

Then, were SEE to be sold for a Mobileye-type valuation of 42x revenues it would be worth a minimum of between US$32bn to US$46bn. Note that Mobileye sold for US$15.3bn.

Now discount that back for execution risk, meteor showers etc and even the meanest industry player would probably pay at least US$5bn (£3.6n) for its strategic value and future cash flows this year. That is about £1.50 a share from its current 4p.

I know some will say that is totally unrealistic. Still, the figures are there if you dig. It has happened before to shares with far less real value than SEE.

Takeover

But don’t worry, I anticipate that long before 2022 Seeing Machines will be bought by a huge company that does see the potential here. In any case, when SEE announces a couple more huge OEM wins (before the end of June) the price should start to appreciate substantially.

So why hasn’t it happened already? Well, I think the market has yet to catch up with reality. But the aroma of coffee is wafting inexorably towards its nose and it will wake up very, very soon.

Colin Barnden, Lead Analyst at Semicast Research wasn’t keen to be drawn on the exact valuation of Seeing Machines but did explain: “What is clear to me is no one is following the DMS market (the big investors still believe in autonomous driving at Levels 4 and 5). This will change soon enough and CES was a big step in that direction. Certainly the car OEMs are in no doubt. I think the delays have come about from the OEMs taking longer to decide which T1/T2 to use, and then rolling DMS out much faster than had been previously thought. All will be clearer by June.”

My fears of a low-ball bidder getting SEE on the cheap have now receded substantially, given the accelerating take up of its camera-based DMS into cars. Any such bid, if publicly acknowledged, would surely just ignite a bidding war.

The writer holds stock in Seeing Machines.

Cadillac extension gives Seeing Machines US$10m boost

News from Motor Authority that Cadillac is rolling out Super Cruise across its entire range of Cadillacs from the end of 2020 is very positive for Seeing Machines, as the system incorporates its Driver Monitoring System (DMS).

Cadillac

Global sales for Cadillac were 356,00 in 2017 and at approximately US$10 a car (only software being used not the chip, apparently), Seeing Machines can look forward to initial revenues with milestone payments of up to US$10m. Thereafter, annually it is likely to be less unless GM moves to a Gen 2 chip or extends the DMS to its entire range of cars.

The Super Cruise system, which enables safe hands-free semi-autonomous driving, was only this week voted the 2019 Technology of the year by Autoblog.

This extension across the entire Cadillac range is certainly materially important, so I’d expect a full RNS at some point. Personally, I think its the first stage in what eventually will be a roll-out across all GM cars. For, just as every car now has seat-belts, DMS is going to be mandated as an essential system around the world to prevent accidents from driver fatigue and inattention.

I’m also expecting confirmation, whether from news articles or RNS announcements, of several other huge auto OEM wins over the next few months.

Fleet

It’s also very encouraging to learn that First Bus, one of the UK’s leading bus operators, to deploy Guardian to numerous bus services across the UK & Ireland.

In the blog post on the Seeing Machines website (why not via an RNS?) the company revealed: “Following an extended evaluation of at the Reading RailAir coach service, running from Reading train station to Heathrow Airport, First Bus has decided to rollout the technology further across their fleet.

“Phase one of the agreement is the fit-out of Guardian to a number of services in the UK and Ireland and has begun with Glasgow Buchanan Street Bus Station to Glasgow Airport. The installation across the region will comprise a mix of retrofit to existing coaches and new builds with Guardian pre-installed. This phase is expected to cover more than 70 buses and coaches and to be completed in early 2019.”

Broker notes

I look forward to Cenkos, and yes even Canaccord Genuity, soon producing updated estimates for this year and well beyond. This is because I believe projected revenue growth over the next 3 years, led by auto, will amaze many. Moreover, contracted revenues should grow exponentially this year, led by further deals with auto manufacturers who are keen to incorporate Seeing Machines Fovio driver monitoring technology into their cars.

The writer holds stock in Seeing Machines.

2019: Seeing the rise of driver monitoring

It’s now mainstream news that 2019 will be the year the world realises that driver monitoring systems are the next big thing in the world of auto. After all even Waymo CEO John Krafcik has acknowledged that widespread adoption of autonomous cars is some way away – hence its use of a Back-up Driver Monitor in its vehicles.

Seeing Machines is the leader in this space and it’s great to see some of its OEM customers, such as Byton, BMW, Mercedes at CES 2019. Others that have been developing DMS now realise they will have to choose SEE if they want the best camera-based DMS system.

Smarteye’s move to develop a chip must be seen both as a validation of Seeing Machines’ auto strategy but also as an indication that it is losing out to the Fovio chip in winning OEM business.

Auto revenues underestimated

It’s my contention that in the light of the incessant and pressing demand for its technology Seeing Machines auto revenues from 2020 onwards will be seen to be vastly underestimated.

Examining a detailed note from house broker Cenkos dated 22nd June 2018 is revealing. In it, (page 14) analyst John-Marc Bunce predicted auto revenues of A$63m in 2021, rising to A$213m by 2022.

I’d argue that global penetration of DMS as well as Seeing Machines market share of that penetration have been underestimated. That is already becoming clear to industry insiders and will become obvious to investors very soon.

What I believe will trigger it will be confirmation that Seeing Machines has cracked any of the following: another premium European OEM (Volvo or VW), a US OEM (Fiat Chrysler) and a Japanese OEM (Toyota, Honda, Subaru). I don’t think investors have too long to wait.

To be fair to Bunce he did acknowledge in the above note: “If Seeing Machines, as a similar market leader to MobileEye, manages to win 60% market share of the DMS market, and we assume global penetrating of DMS is 80% in 2026, this would imply the potential for over 50m vehicles pa (which compares to our current forecast of 27m).

It seems perfectly logical to me that a big beast will acquire Seeing Machines long before this becomes a reality — and not for peanuts either. Indeed, it’s strategic value cannot be overestimated and, even as I write, I wonder if discussions are taking place at CES that may eventually result in a takeover.

The writer holds stock in Seeing Machines.