Sensible shift in strategy

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Following the news this week that Seeing Machines (AIM: SEE) is to raise £17m to fund the development of Fovio, its auto-focused division, I wanted to give my immediate reaction.

I view this as a positive development as my fear that SEE itself might risk losing control over its IP in spinning out the division with external funding appears to have been well founded.

If you want chapter and verse on this I’d recommend you read an excellent note published this week by Lorne Daniels, the analyst at SEE’s house broker FinnCap.

To be honest, though, the timing took me slightly by surprise: I’d half expected such a move in October when the finals were announced but had been reassured that funding was in place until June 2017.

Why raise now?

So why are they raising now and not at the end of the first quarter of 2017, given that SEE had sufficient cash till June 2017? Well, my guess is that funding concerns may have been holding up negotiations on some contracts.

That SEE is in negotiation for some big deals appears to have been confirmed in Lorne Daniels’ note this week, in which he wrote: “…fleet sales of Guardian v.1 have been sluggish but are set to be boosted by several large deals under negotiation”.

Certainly, the local Dubai media have quoted officials in Dubai appearing to confirm that SEE has won 2 separate tenders to supply its Fleet technology in both taxis and buses. However, SEE has not been officially named and so I’m guessing the contracts are still to be signed.

It’s also possible that other successful trials and negotiations (in auto/trains and aerospace) will move more swiftly as a results of this fundraise. Let’s hope so.

The timing of this raise could also prove to be very fortunate if stock markets do plummet by the end of the first quarter of 2017.

Despite the ‘Trump reflation’ effect that has boosted stock markets, which expect a huge US$1trillion stimulus and tax cuts, I’ve a strong feeling it will end in tears by the end of the first quarter of 2017.

This is because, as Jim Rickards has pointed out, the stimulus effect will be far less than the market expects (due to Republican opposition), while the Fed appears to be likely to further tighten monetary policy with another rate rise in March 2017.

When the market realises this, you can expect a fall, possibly even a crash. Raising money then will be much harder.

Now that SEE’s immediate funding concerns have been put to bed, I’m confident positive news flow will move this much higher over the next few months. According to Lorne Daniels SEE should now be funded to profitability.

However, if CAT and Fleet sales disappoint next year, it is conceivable that SEE might need to raise more funds. Hopefully, that won’t happen: as any such raise would then give rise to fears of a share consolidation, which rarely ends well for private investors.

I’ll certainly be keeping a keen eye on the news flow over the next 3-6 months.

Of course, this is a personal view and shouldn’t be taken as financial advice.

The writer holds stock in Seeing Machines.

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