Seeing Machines is worth £2bn

I know a few investors thought I was ramping when I wrote in a previous blog post ‘Seeing Machines wins BMW contract worth between US$125m to US$250m‘ that this AIM-listed minnow was worth £2bn (89p a share).

My reasoning is simple: it’s currently the leading specialist supplier in the global automotive market. (Read that slowly and ponder the implications as automotive is one of the hottest tech sectors in the world).

You want proof? Fovio, Seeing Machines’ world leading driver monitoring technology is currently being used by General Motors in its Super Cruise system for semi-autonomous cars, and is set to go into production in Mercedes and BMW cars within the next couple of years. 

Note that even before the BMW win, house broker Canaccord Genuity affirmed Seeing Machines was worth 21p in note dated 9th January. Analyst Caspar Trenchard also indicated that “the Fovio ‘platform’ technology might well be of specific additional worth to a corporate acquiror.”

Increased regulation is driving this adoption and many other car manufacturers and Tier 1s are queuing up to use Seeing Machines over the next year. I fully expect Subaru, VW, Audi and a host of others to follow in due course. (Tesla really ought to be banging on Seeing Machines’ door to get their kit into its cars.)

Lorne Daniel

Lorne Daniel, Head of Research at FinnCap, is a well respected tech analyst who has previously compared Seeing Machines to Mobileye, which was bought by Intel for US$15.3bn. 

I needed a sanity check to ensure I wasn’t deluding myself as to its intrinsic value, so I asked Lorne Daniel a simple question: “Do you think a £2bn valuation on Seeing Machines is unrealistic, given its increasing dominance in the auto OEM market?”

His reply: “Absolutely it’s a realistic valuation. The end markets are enormous and time and again the company is delivering on its promise with very big companies.”

Of course, I can imagine many readers moaning, “But its price is less than 5p!”

Well, as Warren Buffet once famously said: “Price is what you pay, value is what you get.”

Low-ball bid

Given the fact the stock is currently languishing below 5p, my own concern is that there is a distinct possibility an opportunistic bidder may soon seek to take advantage of this valuation anomaly with a low-ball bid.

Should that event materialise, my hope is that the management and quality institutional investors, such as Herald’s Katie Potts and Miton’s Gervais Williams (who’ve been invested here for years and fully realise what it is now worth), would resist any such offer and seek a price that fully reflects its value.

After all, the likes of Apple, Google, Samsung and Tesla — not to mention a host of Tier 1 automotive suppliers (Autoliv, Bosch, Aptiv, Denso and Continental etc)— are likely to be keen to acquire Seeing Machines’ technology. 

Think about it. £2bn is a realistic valuation for Seeing Machines. Moreover, £2bn for some of these companies is money that they can easily afford to spend in order to build market share in the automotive market.

The writer holds stock in Seeing Machines.

Seeing Machines wins BMW contract worth between US$125m to US$250m

I’m convinced that Seeing Machines has recently been awarded a contract worth more than US$25m a year by BMW to supply its driver monitoring system in its cars, some of which should be available for sale by 2020.

From discussions with auto industry contacts, I believe the contract is for many forthcoming models (several million cars) and the DMS is likely to eventually end up being standard issue within the instrument cluster of all BMW cars. Given that BMW sells roughly 2.3m cars a year and that Seeing Machines would get approximately US$30 a car, that makes a potential annual income of US$57m a year by 2020, rounded down to US$50m.

Given that in the auto industry the lifetime of a model lasts for roughly 5 years, the lifetime value of this contract should be at least US$125m, though it could be as much as US$250m.

When this news is officially announced I’d expect broker upgrades to be the order of the day.  FinnCap currently has an estimate for full year revenues of A$141m for 2020 and Canaccord Genuity has an estimate of A$128.5m — of which only A$24m is from auto!

Aptiv

There has been no official announcement of the contract win aside from an announcement by Aptiv on page 9 of this document that I take as confirmation. 

When questioned, Aptiv were unwilling to discuss any details, saying: “…unfortunately we have nothing incremental approved to share beyond what’s in the document.”

Given the scale of BMW’s operations, the BMW contract may be shared with at least one other Tier 1 but no others that I’ve contacted are keen to confirm or deny involvement.

BMW itself remained rather coy. Asked how it plans to solve the problem of driver disengagement and the associated issue of ensuring the driver is alert and ready to take back control from the car, whether it would use a driver monitoring system and who would supply it, a spokesman said: “So far we have only announced that interior cameras will play a role ensuring the vaild point you mention. Details on functions and suppliers have not yet been announced. We have to ask for a little more patience.”

Seeing Machines was contacted but declined to comment.

Winning BMW so soon after it won a huge contract with Mercedes last year truly cements Seeing Machines’ Fovio driver monitoring system as the leading DMS in the auto industry. The premium choice for premium auto manufacturers.

Note that General Motors Cadillac already features Seeing Machines Fovio DMS.

Not only is Seeing Machines working hand in glove with Autoliv and Bosch, but I believe its DMS is now being used by LG (Mercedes), Aptiv and probably others that I don’t know about.

Driven by regulatory changes many other car OEMs are going to be tendering for DMS systems and Seeing Machines is set to be the industry standard. A standard that i’m consistently told no other company can yet match.

Thus, I’m confident that Fovio is likely to be chosen by many other global OEMs as they gear up new, increasingly semi-autonomous, vehicles for production over the next year.

Valuation

By my reckoning the automotive side of Seeing Machines must already be worth £1bn and with every new win is only increasing in value.

Moreover, there’s a strong case for arguing the rest of the business (Fleet, Aviation, Rail and Off-road)  is worth another £1bn.

Given the success of Seeing Machines in winning large contracts and the increasing momentum of M&A activity in the auto industry I believe it’s only a matter of time before a bid is forthcoming from an industry player. Let’s hope the price soon reflects the value of the business.

The writer holds stock in Seeing Machines

Seeing Machines delivering on long-term strategy

In an exclusive interview with Seeing Machines interim Chief Executive Ken Kroeger, he has confirmed that the company remains on track to hit its first half financial targets and is making no adjustments to its full year figures.

Following the departure of former chief executive Mike McAuliffe, who had only been in place a few months, private investors have been concerned as to whether there was likely to be any strategic change of direction. Happily, as Ken Kroeger confirmed: “The strategy that we’re executing is exactly the same one that we were executing when he arrived. Moreover, the executive team that is delivering that strategy remains the same.”

It’s a point that was well made by Lorne Daniel, analyst at house broker FinnCap a week ago, when he wrote: “We know that the second tier of management in this business is particularly strong and will continue to follow the strategy and deliver on the milestones as expected.”

The business certainly seems to be making steady progress across fleet, auto and aviation and Kroeger stressed the efforts of the executive team in having built them up. “These are businesses that didn’t even exist a few year ago and Paul Angelatos (Fleet), Nick Di Fiore (automotive) and Pat Nolan (Aviation) have done a great job in creating and building these markets for Seeing Machines.”

Auto industry

Not only is Seeing Machines working with GM to deliver driver monitoring systems for its cars (most notably the Cadillac CT6 whose Supercruise system uses it), but on October 30, 2017 its Fovio Driver Monitoring System was chosen by a premium German OEM (who I believe to be Mercedes).

Kroeger wouldn’t comment on who the German OEM is but did confirm: “It is extensively pushing the boundaries in driver monitoring, taking it to a whole new level. That is underway. That is a real state of the art delivery, very technically challenging but it sets a completely new performance standard for DMS.”

Given recent bulletin board discussions as to the respective merits of Seeing Machines technology vs. SmartEye, Kroeger was happy to explain: “We have the best technology, there is no doubt about that at all. SmartEye has an okay technology, which is cheaper…we’re much better positioned to take the premium car models that are interested in performance, who need this to work because it is a safety critical feature. For models that are being rolled out where it is nice to have comfort features in the car, which only require rudimentary head and eye-tracking, SmartEye is a viable option.

He added: “Right now we definitely have a leadership position from a technical perspective. That is very much respected by the auto OEMs.”

In addition, I’m optimistic that other OEMs will select Seeing Machines DMS technology, doubtless driven by the NCAP requirement for any car model wishing to have a 5 star safety rating from 2020 to have a DMS in place.

In Japan strong market opportunities are being helped by the effort of Kevin Tanaka working out of the West Coast in the US. Also Kroeger confirmed: “There is a very strong alignment with Xilinx in Japan, who are doing a lot of our on the ground marketing for us. It is definitely getting well received by the Japanese.”

Fleet

While a comprehensive Fleet update is due this week that should provide much awaited news on further wins, Kroeger did reveal that the Guardian 2.0 device will start shipping by the end of March. The upgraded system is significantly cheaper to manufacture, smaller and easier to install, which should also help increase penetration rates.

Takeover

Given the much higher profile of Seeing Machines since the launch of the Cadillac CT6 and the most recent CES show, where it was showcased by both Bosch and Autoliv speculation is increasing daily over whether it is being tracked for takeover, whether by a Tier 1, a telematics company, or even Google or Apple.

Asked about this Kroeger coyly replied: “There is always interest. We would never say ‘no’ to a conversation but we also recognise that there will a time when the time is right to return the best value to shareholders. We’re very cautious about the conversations we do have and, if we were to contemplate selling the company, we would have to find somebody who valued the entire organisation to obtain the full value for it.”

When pressed further about Google, Apple or Amazon seeing the long term value in Seeing Machines technology, which has applications far beyond transport alone, given it can enable robots to see and perhaps eventually even empathise with humans, Ken Kroeger commented: “I agree it is either someone like that who can see the full value or a really diverse Tier 2 or Tier 1, as opposed to the OEM. The Tier 1s sell to the OEMs but some of the Tier 2s which sell to the Tier 1s are exceptionally diverse. They might be building stuff for automotive, stuff for aviation and stuff for medical devices, stuff for consumer electronics. They might not just be an automotive-centric supplier. They are really hard to find and pinpoint but they are out there because they are always talking to us.

Of the partners that Seeing Machines currently has some are definite possibles. “Or, it could be someone who sells image processors and wants to start packaging it with software already on it on a smart camera or smart sensor,” teased Kroeger.

Despite being a world leader in DMS tech, a key plank in the forthcoming generation of semi-autonomous cars and increasingly being considered in trains, planes, trams and buses, it’s current share price languishes at approximately 5.5p. This valuation anomaly cannot last much longer, especially as with the recent fundraise it has been largely de-risked as an investment provided sales continues.

Ironically, such a deeply discounted valuation could well be the catalyst for an opportunistic bid from a cash-rich global player before the year end.

The writer holds stock in Seeing Machines.

Seeing Machines on track for first rail sales

Seeing Machines (AIM: SEE), an industry leader in computer vision technologies that enable machines to see, has confirmed that it expects the first firm sales of a new driver monitoring rail product by Progress Rail before the end of the financial year.

This follows an announcement on September 8th that it had signed a new extended Partnership Agreement with Progress Rail Services Corporation (Progress Rail).

In an exclusive interview, Paul Angelatos, Senior Vice President & General Manager Fleet, Rail and Off-Road at Seeing Machines, told Safestocks: “As you know, we have undertaken various trials, using the mining tech, for rail. Through these trials, we have learnt more about the way an engineer operates in a locomotive cabin (for example, they get up and move around), so there are specific things that will change within the product, but the core product technology will not change. This is a fine-tuning, so we do expect to have sales by end of the financial year.”

Revenue streams

Seeing Machines will derive revenues in two ways from these sales:

  • From a royalty on hardware sales;
  • An agreed fee for services (tech support and monitoring).

In addition, as part of the new agreement both parties have an agreed overall minimum revenue target for each year, which Progress Rail needs to deliver on to retain exclusivity.

Angelatos declined to reveal the level of royalties but it is expected to be well in excess of the mid-teens percentage it receives from Caterpillar in mining vehicles. Confidentiality agreements similarly prevented him disclosing the minimum revenue targets each year, although he did state: “This is a 5-year agreement. By year 5, we expect that this deal would be returning in excess of US$6m per year.”

Fatigue is a contributing factor in over 20% of rail incidents, according to research from the Rail Safety and Standards Board in the UK. Given that there are 200,000 freight and passenger trains worldwide, Seeing Machines has first mover advantage in a potentially huge market.

The writer holds stock in Seeing Machines.

Seeing a CES bonanza for Fovio

This year’s CES show in Las Vegas has demonstrated strong interest in driver monitoring systems (DMS), from automotive manufacturers and their Tier 1 suppliers. All good news for Seeing Machines’ Fovio division, which is fast becoming the dominant supplier of driver monitoring systems to guard against driver fatigue and distraction.

It was at CES in 2015 that Seeing Machines first showed its driver monitoring car technology with Jaguar. In addition, Seeing Machines has confirmed that Bosch, Takata and Volkswagen are showcasing Fovio tech at this year’s CES.

  • Bosch’s vehicle demonstrates new intelligent driver interaction capabilities enabled by Fovio
  • Volkswagen demonstrates a vehicle cockpit concept with integrated Fovio DMS
  • Takata demonstrates steering-wheel integrated DMS

I think it is only a matter of time before many other OEMs and Tier 1 suppliers are linked with Seeing Machines as the auto industry introduces advanced semi-autonomous vehicles, then fully autonomous vehicles.

As Mike McAuliffe, ceo of Fovio has noted: “We’re seeing a groundswell of demand in the industry for our Driver Monitoring technology.”

Tesla, Jaguar, Land Rover and Porsche are all marques that I personally think are likely to adopt its technology. For instance, Elon Musk would be in ‘ludicrous’ mode if he didn’t appreciate what Seeing Machines DMS could do to enhance safety features in his cars.

Ludicrous valuation

What is undeniably ludicrous is that this stock languishes at a market cap of £45m when it is about to crack not only the auto market with Fovio but the fleet market with its Guardian product. (Caterpillar liked its driver monitoring product for the mining industry so much it bought the whole operation in return for an upfront payment and ongoing license and royalty stream for Seeing Machines).

Seeing Machines now has only to lie back and wait for the money to roll in from the Caterpillar sales team. Similarly, holders of this stock who hold it for a couple more years should make a stellar return.

According to projections from Lorne Daniels, a well respected analyst at house broker FinnCap, Seeing Machines will deliver sales of Aussie Dollars 141m (£84m) in 2019 with pre-tax profits of A$22m (£13m). I expect this figure to be revised sharply upwards along with his target price of 12p by the end of this year.

Any lingering doubts about the take up Seeing Machines offering in the fleet space were certainly dispelled with its tie up with Mix-Telematics, a global telematics provider in late December.

Following its fundraise this month, I’m convinced Seeing Machines is set to rise steadily.

However, don’t take my word for it. Do your own research and then make your own mind up.

The writer holds stock in Seeing Machines

Seeing Machines gains global partner to boost fleet sales

Today’s announcement by Seeing Machines (AIM: SEE) that it has signed a non-exclusive global distribution partnership with telematics provider Mix Telematics is great news on a number of levels.

Firstly, it provides a ringing endorsement of SEE’s Fleet technology, designed to drastically reduce accidents due to driver fatigue and distraction. Moreover, as a major player in the global fleet industry, with 578,000 subscribers across 120 countries MiX Telematics will enable SEE to leverage its global distribution and installation network.

As Lorne Daniels, analyst at house broker FinnCap notes: “Fatigue and distraction is a huge and growing issue for both private drivers and fleets, particularly with the growing mobile functionality and dependency. Telematics is vital for modern fleet management. Yet installing and subscribing for a number of different in-cab systems is difficult for fleet managers. Combining telematics and driver monitoring solutions in one device and from one supplier clearly makes sense, reducing cost and complexity.”

It should be a win for customers of both customers and Lorne confidently states: “…we expect a substantial increase in Guardian sales volumes over the next few years.”

I’m therefore very optimistic that within the next 6-12 months we should see substantial upward revision of sales estimates for Fleet.

Exclusive interview

Today, in an exclusive interview with Paul Angelatos, Chief Operating Officer at Seeing Machines, I put a few questions to him regarding this latest development. I’ve provided the full text in Q&A format below:

Chris Menon:  Given the amount of injuries and deaths caused by driver fatigue and distraction in trucks/lorries etc, how great an impact do you think the combined offering will have in reducing accidents among your customers?

Paul Angelatos: We have shown (peer reviewed paper written by Prof Mike Lenne and presented at this years ITS Conference in Melbourne) that when our Guardian solution is implemented, coupled with real time monitoring, we can reduce the occurrence of fatigue events and distraction by up to 91%.  When we integrate with MiX telematics, who are industry leaders in fleet safety in their own right, we will also have a greater understanding of what is occurring in front of the vehicle, how the vehicle is being driven (based on data MiX take from the vehicle), and then provide detailed analysis of a whole range of factors, including the driver’s state, in a single report.  This is a powerful tool for fleet operators who are focussed on safety.

Chris: What are the projected sales of the new offering over the next 1-2 years?

Paul: That is difficult to put a figure on this. What both companies know is that we are independently increasing our sales each year and both companies have identified demand for the other parties services with current and prospective customers. We already have overlapping customers that present opportunities for integration and we have a product that is complementary (rather than competing with each other). Even small percentages of the addressable market (both companies existing sales pipelines) will lead to solid returns.

Chris: Is it an exclusive global agreement across the world or is it restricted to certain territories?

Paul: It is a Global non-exclusive agreement. This is the first stage in our relationship and it is important for both companies to pursue opportunities as they see fit. As we progress and demonstrate our relative value to each other, the relationship may take a different shape.

Chris: Have you committed to a minimum order immediately?

Paul: There is no minimum commitment from either party.  This is an agreement that has been a long time in the making. We have developed a strong degree of trust with each other and are comfortable that our cultures a well aligned and we share the same motivation. An arbitrary minimum commitment from either party wasn’t deemed necessary.

Chris: What will be the approximate cost of the combined product in terms of upfront purchase and then monthly fees?

Paul: We will shortly be undertaking some joint marketing with MiX. We will save the release of our pricing for that occasion.  Needless to say, our customers will receive greater value by installing our combined integrated offering than they would by taking the two solutions independently.

The writer holds stock in Seeing Machines.

Sensible shift in strategy

Quote

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.

Seeing Machines at a crossroads

Regular readers of this blog will know I’m very keen on Seeing Machines. However, its would-be spin-off, Fovio has been delayed for a few months now (it was intended to spin it off by July 1, 2016) and the costs are still being borne by the main business. Therefore, while Monday’s results show great progress in many areas I wanted to concentrate on the likelihood of its being ‘forced’ to raise cash in the very near future.

From my discussions with management it appears that the cash position is now A$11m. The present cash holding will be boosted by an in principle agreement with CAT to bring forward  US$7M by Christmas (for although the revenue was recognised in the 2016 accounts, the actual cash is spread out). In addition, there should be around A$4-$5m coming in from fleet sales to assist working capital.

Even if SEE were to carry the full cost of auto, which is estimated by the Lorne Daniel, analyst at house broker finnCap as A$14m, overall net spend will be A$25m in FY 2017. This means that although finance would be tight by next June the company isn’t compelled to fundraise immediately. 

According to SEE’s interim CFO, James Palmer: “The plan is still to spin off Fovio by Christmas. However, we can comfortably carry Fovio until June 30, 2017, which would give us ample time to go to a plan B if we need to. That is if plan A wasn’t working in the best interests of the shareholders and we had to look at an alternative structure.”

Chief Executive Ken Kroeger stressed: “The only thing that would change that is if we decided that a spin-out isn’t the best thing for current shareholders. We have invested another A$4m into automotive since year end and we’re not necessarily going to get more equity for that. In parallel to that, that $4m has delivered a whole lot of outcomes that we might not want to give away to somebody else and we are out there pursuing business that we could win between now and Christmas that would increase the value of the company, and which we might not want to give away at the current valuation.”

“Our view is that the delay, while consuming cash, is increasing the value of our business and unless that is properly recognised in the spin out, we have the ability to reshape that if we choose to,” added Kroeger.

Certainly, SEE seems keen to let potential investors know that it isn’t desperate for cash and its trump card is that the auto industry is desperate for its technology. Indeed, among auto OEMS, I understand that it’s only the Koreans that are not using its DMS technology. All the rest they are doing something with.

Fleet

Fleet is very important as aside from CAT it is the only part of the business currently generating revenues. In the year, ended 30 June 2016 it sold 1,666 units and already in the first quarter of its 2017 financial year it has managed to ramp up sales by approximately 3000 units, with a cumulative total of now 6,000 units sold.

Moreover, its pipeline of assessments continues to grow. At the end of June it had 34 on the go but when I sat down with Chief Operating Officer Paul Angelatos this week he joked: “We’ve not been sitting on our hands since the year end and in fleet we now have 45 assessments underway.” The total number of units this potentially represents is roughly 160,000. 

In addition, part of the strategy is to work with telematics providers in order to get sales in very large volumes as he explained: 

“Most of the large fleets we are working with already have a telematics solution installed, (tracking the vehicle, tracking driver behaviour in terms of harsh braking, cornering, acceleration, etc., with GPS and an ability to transmit data)…Our product development is now focused on being able to integrate with the existing technology, stripping further cost out of our product, reducing the complexity of installation but more importantly allowing us to access existing customer bases with these partners.”

SEE now has memorandums of understanding (MOU) with 3 telematics providers and is having preliminary discussions with a fourth. As Angelatos commented: “The strategic telematics partners that we are now talking to effectively give us access to an installed base of over 2m vehicles.”

“We should be able to return some revenue from these strategic partnerships this financial year. It won’t be significant but it does set us up for FY18, where we have the new product, we’ve proven the integration, we’ve proven that our technology works together, so we’ll be able then to access that volume market.”

In this financial year (2017), fleet revenues will be derived largely from direct sales and distributors.

“Typically our model now is selling as a service, so we are looking at a bundled subscription fee per vehicle each month which is in competitive with other Mobile Resource Management (MRM) solutions. This provides a customer with a hardware solution and the full suite of analytics and monitoring of their fleet,” added Angelatos.

“We have expectations of a certain number of units this financial year and next financial year it is an exponential increase based on the fact that we are going to be able to access some existing installed base with those partners plus new sales, ” he concluded.

Conclusion

It appears to me that that there is a possibility that if SEE doesn’t get the deal it wants for the auto spin-off very soon, one option could be to fund this division itself with a smallish capital raise in order to retain more value and control.

While this might appear fanciful, if revenues from Fleet continue to increase over the next few months, the amount to be raised for auto needn’t be hugely dilutive to existing shareholders. 

There certainly wouldn’t be any shortage of Silicon Valley VC capital willing to invest in SEE itself, not to mention mutual funds and private investors.

Moreover the upside it would be capturing and retaining for investors might well outweigh the short term effect of any dilution. Indeed, if a fund or company bought in at a premium that would be a very bullish sign.

What I would hate to see would be a dilutive fundraise followed by a share consolidation that wipes out long term private investors such as myself. Yet, I get no indication such a move is on the cards.

Certainly, concerns over cashflow have been holding it back for a good while now and it makes strategic sense to keep Fovio in-house, in my opinion.

An eventual flotation of the whole company on Nasdaq could then set it up for a meteoric rise. For example, just look at the mouth watering (US$9.2bn) valuation of Mobileye and ask yourself where SEE is likely to be a year from now.

This last thought is pure speculation on my part and there are a lot of hurdles to be surmounted before then. Still, whichever plan SEE chooses to  follow it is very much undervalued at its current share price.

As always, I’d advise that investors do their own research and not rely on the thoughts of others.

The writer holds stock in Seeing Machines.

Analyst very positive on Seeing Machines

As the UK was voting to leave the EU I was speaking with Lorne Daniel, the analyst at house broker FinnCap who covers Seeing Machines.

It was Lorne who first opened my eyes to the enormous potential of this AIM-listed company.

Like me, he’s very much looking forward to the automotive spin-off, expected to raise up to US$50m, perhaps in two tranches. Interestingly, he feels confident that SEE will maintain a high stake, around 75% in the initial funding round, perhaps dropping to around 50% in the second round.

This is what he said: “In the initial round, I was thinking Seeing Machines would have 75% and the investors will have about 25%. Then it would drop to around 50% for the second round.  Nothing has been confirmed yet but that was my thinking.

“I guess we will find out but as I understand it they need around US$50m. So, however that comes in, (for example, $25m and then $25m), I would be disappointed if they didn’t value their own IP at US$50m plus. I think it is worth, far more than that by any sort of calculation.”

“But to be fair, these initial investors are likely to be industry giants taking a big stake and they will want their cut. That’s fine.

“The template is Mobileye which has a US$8bn valuation on the US market with revenue of just US$240m. If Seeing Machines’ automotive spin off gets anywhere near that rating nobody will worry what that initial valuation was.”

Now my belief is that GM Ventures is the cornerstone investor and that VS Industries is investor number two. I don’t know who the third might be but I’m hoping it may be Intel. 

We shouldn’t have to wait too much longer to find out, given that Seeing Machines announced that lead investor had signed a term sheet on May 16. 

Fleet

Not only is SEE getting 15% of the growing royalty stream and monthly revenues  from sales of its product by Caterpillar, but it involves virtually no cost. Moreover, as soon as a telematics deal gets announced, and we already have MOUs, this will have forecasts upgraded substantially. This is turn should lead to a significant price rise and a further re-rerating. 

It’s significant that Seeing Machines is now leveraging insurers and telematics companies to roll out its technology in a cost-effective way. 

As it starts to grow you can also expect momentum traders and larger funds to start getting interested in the company, which would drive the price up further.

Of course, all this supposes that things go smoothly, which is never the case in business. 

Price target

Lorne Daniel currently has a price target of 12p on SEE and I’d expect that to rise following either the launch of the auto-spin-off or a significant fleet contract. 

Takeover

I’d be concerned that as the company is so undervalued, particularly given the limited downside and the virtually unlimited upside, an attempt to take it over on the cheap can’t be ruled out. This could be a direct competitor, or possibly a partner on the telematics front, or even Mobileye whose technology offering would be significantly enhanced.

In fact, I could reel off half a dozen companies that might logically seek strategic advantage by buying SEE.

However, the auto spin-off (by providing independent valuation of its IP far in excess of its current market value) will make this eventuality less likely. Certainly, any company then wishing to takeover Seeing Machines will have to pay a significant sum. I personally don’t think US$1bn would be an unrealistic sum to expect at that stage.

As the auto spin-off is very likely to be completed this side of Christmas (key management should definitely be in place by then), I’m prepared to stick my neck out and say that within 18 months I expect SEE to have a valuation of between 50-75p. That’s quite a rise from 3.25p at the time of writing.

Of course, you should always do your own research before investing.

The writer holds stock in Seeing Machines.