Seeing Machines is worth US$10, even £10, but not 10p

At the Automated Vehicles Symposium (AVS) held in San Francisco last week, one presentation made was by the National Transportation Safety Board (NTSB), about the first Tesla crash involving Autopilot. The NTSB said that “steering wheel torque is a poor surrogate measure” for driver attention. In a tweet highlighting the presentation, Colin Barnden, Lead Analyst at Semicast Research commented: “This only really leaves camera-based DMS to fulfil driver engagement function.”. In a subsequent tweet Colin also identified a possible scenario where Waymo buys Seeing Machines, maybe even in a 12-18 month timeframe, for US$10 billion.

Here’s Colin’s reply in full to my asking about his thinking behind these tweets and the jaw dropping valuation.

Colin Barnden

The NTSB presentation at AVS. That’s a game changer. If you are a transport executive and you value your freedom, you don’t ignore NTSB recommendations. This even applies to anyone with the first name Elon too.

Level 3 is starting to gain traction so Waymo are looking like they have called the handover problem incorrectly and L3 is possible after all. Time will tell on this. L2/L3 is where the volume will be in my view, at least for the next decade.

Robo-taxis may get investor and press attention, but the volume will be in the mass market. Seeing Machines is the classic ‘pick and shovel’ play, the tech can go almost anywhere in transport applications that humans and machines interact. It certainly isn’t obsolete.

Price… who knows? Could be higher, depends how desperate the bidding war gets (see Sky as a good example). Remember what I wrote to you last week “I can see ten bucks a share persuading the Board to sell up soon, or even ten pounds, but not pennies. That would be stupid, and they (the Board of Directors) aren’t”. [This refers to us discussing privately the likelihood of Seeing Machines’ management accepting a low-ball bid in the next few months].

The current market cap simply reflects that the market is clueless to what SM has achieved. The company isn’t clueless, the executive management are whip smart. The market is coming to them (and Smart Eye too) it just needs patience. Maybe even as little as 12-18 months.”

You can follow Colin at @semicast_res

You can follow me, Chris Menon, at @Penforjustice

The author holds shares in Seeing Machines

Understanding management priorities on price

I’ve been wrestling with the issue of divergent interests between management and shareholders of a public company. How can the stock price of a great business be very undervalued and management be unconcerned? (Successive fundraisings that dilute long term holders are a sign of that, for example).

I didn’t have the smarts to work it out but fortunately I know a man who does. Benjamin Graham, the father of value investing, worked this out 50 years ago in his book “The Intelligent Investor”.

I’ll quote him at length below, where he cuts the Gordian knot:

Benjamin Graham

“Why is it that insiders may have no interest of their own in following policies designed to provide an adequate dividend return and an adequate average market price? It is strange how little this point is understood. Insiders do not depend on dividends and market quotations to establish the practical value of their holdings. The value to them is measured by what they can do with the business when and if they want to do it. If they need a higher dividend to establish this value, they can raise the dividend. If the value is to be established by selling the business to some other company, or by recapitalising it, or by withdrawing unneeded cash assets, or by dissolving it as a holding concern, they can do any of these things at a time appropriate to themselves.

“Insiders never suffer loss from an unduly low market price which it is in their power to correct. If by any chance they should want to sell, they can and will always correct the situation first. In the meantime they may benefit from the opportunity to acquire more shares at a bargain level, or to pay gift (and prospective estate) taxes on a small valuation, or to save heavy surtaxes on larger dividend payments, which for them (sic) would mean only transferring money from one place where they control it into another.”