Silver lining in a cloud of investor misery?

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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.

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20 thoughts on “Silver lining in a cloud of investor misery?

  1. Chris

    And wasn’t accepted. And since some time in the last year a lot has changed, not only a 50% dilution.
    SEE now have 6 OEM’s and together with further business from existing customers, potentially another 13 RFQ’s there’s too lose.
    Using Mobileye metrics that equates to 87.5p per share, using SEEs Conservative figures.
    So, 17p would be the sale of the century. I see today’s fund raise as consolidating SEEs independence.

  2. I agree. Clearly management (with the exception of the three founders) wouldnt get another job with as much upside… so while not executing well enough to remain independent, they raise enough dilutive capital (similar to a poison pill) to get them through to profitability. Really sad. I’m planning to vote against this placement – I suggest we all vote against it. Plan B of hypothetically selling the whole company at 17 pence is far more logical than selling half the company for 3 pence, right? The new board members must not understand their fiduciary duty (we already know the old ones don’t) – or does that not apply in Australia like it does in the US?

  3. Hi Chris

    Interesting comments by Cenkos. From the wording, is the 39p valuation only as regards auto? No value for Fleet, Aviation BdMS, Caterpillar, data?
    Did you notice BdMS was not mentioned in the placement document?
    Thanks

  4. 39 pence after dilution would be 50-60 pence today… rather than 3. I’m still trying to figure out how to vote no on this. This reminds me of when Michael Dell stole his company from the public markets…

  5. Side note, did anyone notice the “file name” of the Conditional Placing and Subscription? When viewing it online you can see URL calls it “Project Odyssey” … an epic (10+ years) journey is proving to be an appropriate description!

    Chris, isn’t VSI the manufacturing partner responsible for the Guardian product? If so, they seem more a part of the problem, not the solution?

    • Well, I think you make a great point. I dare say that VSI have a better handle on what is really happening than any institutional investor. Personally, I’d like to see someone who is truly independent on the Board. Given all the problems with fleet, management still refuse to give a clear explanation of what went wrong and what has been done to rectify it.

  6. The AGM results presentation from November is also called Project Odyssey:

    https://www.seeingmachines.com/wp-content/uploads/2018/11/SEE-AGM-2018-Results-Presentation-14-11-18.pdf

    My guess is the company likely engaged Canaccord as advisor with a failed sale process / capital raise (perhaps they advised the Board to reject the Bosch offer). If Canaccord was the M&A advisor, it would explain why no new research note issued in a while (company on the internal restricted list).

    Didn’t come to anything of course…

  7. Wow. GREAT find on the reuse of the phrase Odyssey and the background speculation regarding Cannacord. I strongly agree that 17 pence was too low then. Even now. I just no longer have confidence in management doing the right thing for shareholders (For example, Ken owns less than 9 million shares!? – he’s not thinking like an owner). If you look at the companies that SM’s new board members have worked on, their stock charts are all sloping towards the bottom right corner. We need some winners, not moochers!

    I was optimistic they’d raise their next batch of capital on a more reputable stock exchange. This was the time to do it. The financial statements need to be simplified (USD, AUD, GBP) – all referenced in various releases!

    Anyway, hoping you all out there together or in part can collectively help with these questions:
    1.) What is the best guess ASP (average selling price) for a Fovio chip in auto volume production – per car so to speak?
    2.) What is the ASP for the fleet Gen2 product? Wholesale price or net to SM?
    3.) How much is monitoring per month? By June 2020 there will apparently be 27k trucks paying this. If monitoring cost a dollar a day thats gross profit of nearly $8 million annually… and growing (if $6 cost per month). That alone should be worth the company’s 100 million market capitalization!
    4.) Lastly, the breakeven discussed arriving in 1H2023 is using the KNOWN contracted amounts, right? So excluding new wins, volume above minimums, and other new business? Otherwise, this new dilutive money only lasts until the end of 2020? Am I understanding this correctly?

    My ball park revenue model (using my own assumptions and 15% of 60 million cars in 2025) has this company worth nearly 60 pence using a 3.4 billion sharecount. I’m just too sick to buy more down here.

    • Does anyone have access to that Cannacord update from last week – where they slashed their price target to 12 pence from 21 pence? If my math is right, this is a bigger haircut than the dilution would have suggested all else equal – curious about his logic.

      Also, today yet another interview with a SM executive on proactiveinvestors talking about being “pleased” with the capital raise. Totally tone deaf.

  8. Hi Chris

    Can we have you view on the forced director/mamagment buys along with the Kens name missing fro. The list.

    Thanks

    • I thought the same thing. This is sad. The founders still probably own around 20-25 million shares each… it used to be a meaningful percentage but they, like us, have been diluted into oblivion. So much for having skin in the game – more like a bet at the horse track.

      • Hi Mitch or Chris,
        Who are the See founders, do they still work for the company, also do you know how many shares they each own…..if any.

        Thanks.

  9. Well… At least that dilution is now behind us. Cheers to the still-bright future, even if we have to split it with 50% more people 🙁 I’m still baffled this was necessary.

    • So now that there are more shares in action this will most prob not move for quite some time due to the amount of shares in issue? Or does it not work like that?

      • A contract win is a contract win regardless of the number of shares in issue. However, the dilution should be reflected in bare SP ie what would have sent it up 3p would now only increase the SP by 2p or so.

  10. I think the ketchup bottle analogy comes to mind for Seeing Machine. It’ll be the case that all of a sudden all the ketchup will come out at once!! Once the revenues start to climb the market will understand the uniqueness of the organisation and its products. Patience is key, after all they are the ones creating these new markets!

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