Honey, I shrunk the revenues

For me, the most interesting development arising from Seeing Machines’ results last week was house broker Cenkos lowering its share price target from 19p to 15p.

That arguably could provide ‘independent’ justification of Seeing Machines value if a low-ball bid comes in. Understand, I don’t consider Cenkos to be independent myself but in many takeovers the house broker target price is used to support a bid.

I hope I’m wrong but the pattern of communications from Seeing Machines over the course of many months, together with the slow mo correction of problems with fleet looks like carelessness at best.

Smoke and mirrors

On the face of it, the new price target from house broker Cenkos is predicated largely on the basis of lower fleet revenues in the 2019 financial year, bringing down overall revenues and gross profit for Seeing Machines.

So how credible is that fleet revenue estimate?

Cenkos has estimated fleet revenues for 2019 will be only A$14.1m vs. the figure of A$49.1m, which it had forecast as recently as August 3rd.

However, I’m having difficulty working out how such a low figure is even possible given the number of units Fleet has out in the field.

By my calculations in this financial year (2019) Fleet should have recurring revenues from the existing 10,000 fleet units installed up to the end of the 2018 financial year (circa A$17m) plus revenues from the 5,500 that were shipped at the start of 2019 financial year plus a further 4,000 that Cenkos state will be installed by the end of the 2019 financial year.

Seeing Machines itself stated in the RNS announcing its full year results this week: “Total cumulative contracted Fleet (Guardian) revenue of A$82 million as at 30 June 2018. A$50 million revenue yet to be recognised over a three-year period.”

[When I divide $50m by 3 I get £16.6m – what do you get Mr Accountant?]

Well I contacted Seeing Machines via email and this was their reply:

  • “The Cenkos analyst provides his independent view on the Company.

 

  • Guardian revenue is recognised as follows:
    • Total connected Guardian units is 10,000.
    • TCV is based on total cumulative contract value since Guardian was launched.
    • Contract sizes vary.
    • Revenue is recognised firstly when hardware sales are recognised and secondly, once the unit is connected into the vehicle, monthly recurring revenue is generated.
    • Each fleet varies in contract size and it takes varying amounts of time to connect each vehicle in a fleet to Guardian.

 

  • TCV was published as A$82 million. A$50 million of that revenue will be recognised over 3 years – ie by end of FY2021.”

Diversion

Of course, while we’re all pondering about fleet revenues are we possibly missing something? Yes: Seeing Machines is going to be acquired because it’s the leading global DMS and BdMS supplier.

Any potential acquirer probably wants Fleet ‘smoothly transitioned’ (as Cenkos put it in a note on19th September) to a licence model. The beauty of the strategy, the sheer genius, is that it has made Seeing Machines more attractive as a target by both moving the business on and conveniently reducing its short term value.

A potential bidder, let’s call it company ‘B’ for now, can either take advantage of the reduction in SEE’s price while the sale is on or SEE will go it alone and use the extra engineering resource from fleet to help service the multiple auto OEM contracts that are on the way.

And make no mistake those contracts will have to be announced soon. FCA and Toyota are huge wins that finally cement the industry view that Seeing Machines is the Mobileye of DMS.

The window for a cheap sale will have run out within a few months.

Can you hear that clock ticking?

The writer holds stock in Seeing Machines

Seeing Machines wins Apple for Back-up Driver Monitoring

According to my sources Seeing Machines will be supplying its new Backup-driver Monitoring System (Guardian BdMS) to Apple and is very likely to win GM Cruise, possibly Waymo also.

In the typically low key fashion in which Seeing Machines delivers good news to the market the announcement was put out more like a product release than an RNS. Hidden away in the third paragraph it stated: “Seeing Machines has signed an agreement with one customer and is in advanced discussions with a number of companies at the forefront of autonomous vehicle development.”

This is outstandingly good news for the AIM-listed minnow and means Silicon Valley has followed global car manufacturers (GM, BMW, Mercedes and Ford) in recognising Seeing Machines’ driver monitoring technology as best in class.

Apple, in typical fashion, has not replied to any of my emails on this subject but its secrecy in such matters relating to Apple Car is well known.

As stated in my previous blog post, I still expect wins with FCA and Toyota to be announced in due course.

The writer holds stock in Seeing Machines.

Seeing Machines: it’s all about timing

I was slightly surprised at the timing of the revenue warning this week from Seeing Machines, as it has been clear for some time that Fleet has not being doing as well as expected with delays to Gen 2 and no news of business via Mix Telematics. 

It was a point that was succinctly made in the note from John-Marc Bunce, analyst at house broker Cenkos, when he wrote: “The news released yesterday regarding the fleet business is clearly disappointing, especially considering the issues with the Gen2 were first raised in May 2018”.

Given that Fleet (and Rail) have been perennial disappointments there will be a lot of pressure on Chief Executive Ken Kroeger to sacrifice someone. This might go some way to assuaging the anger of investors who’ve seen paper profits evaporate.

Yet, for me, it’s the timing of this announcement that’s of paramount importance. For by smashing the share price down It conveniently clears the way for a low ball bidder to come in and look like a white knight to investors.

I know that such a bid won’t immediately deliver anywhere near the full value that resides in this business – given the importance of its DMS technology to increasingly autonomous cars.

Still, many long-suffering shareholders would probably jump at the opportunity to sell at a very decent profit. Moreover, it ought to ignite a bidding war.

New contract wins

In any case, let me confirm that it is my belief that Seeing Machines:

1) Is set to win auto contracts with Toyota and FCA (news on the former is overdue).

2) Will be supplying its technology to one or more of these companies: Apple, Waymo and GM Cruise. (They’ll want more advanced systems than the non eye-tracking ones used by Uber, I’m sure).

3) Will see its tech used by Canadian Pacific Railway.

The writer holds stock in Seeing Machines.

Seeing Machines will win FCA

I firmly believe Seeing Machines is set to make it 3 out of 3 in the US, when it adds Fiat Chrysler Automobiles (FCA) to its existing customers, General Motors and Ford.

I know this runs counter to the views of the SmartEye analyst Viktor Westman but I’m confident Veoneer with Seeing Machines will be the preferred choice for FCA. My reasoning is simple: FCA is already a key customer of Veoneer and Seeing Machines has not only a superior DMS system but a very close working relationship with Veoneer.

If you were FCA would you choose a DMS system that is inferior to that of your main US rivals?

Japan

Meanwhile, over in Japan, it seems that Seeing Machines has made great progress in cracking that market. Toyota by all accounts is in the bag. Moreover, Seeing Machines is exhibiting its DMS with Japanese Tier 1, Nexty Electronics (that is part owned by Toyota) at the 1st Automotive World exhibition in Nagoya, Japan this week.