Long live the King of the DMS

In a recent note from Redeye, its analyst commented that whoever wins VW or Toyota in the second half of the year will be ‘King of DMS’. He seems to think it may be Smart Eye, whereas I’m convinced it will be Seeing Machines that wins both.

I also believe Smart Eye will soon suffer the embarrassment of Volvo choosing Seeing Machines for its 2021 flagship XC90’s DMS.

Certainly, after a successful fundraise Smart Eye looks ‘strong and stable’ but as the British electorate knows only too well, the truth will out. Propaganda eventually has to give way to reality. That time has arrived for Theresa May and will very shortly arrive for Smart Eye. Tick tock.

Enough of analogies, Smart Eye even as number 2 will have its share of the cake that SEE doesn’t want. China is a big market and I wish it well there. I just hope Chinese consumers don’t take a ride in Byton’s M-Byte when it launches later this year — it features SEE’s superior DMS.

I also believe that the BMW X5 and Audi A8 will revert to Seeing Machines – for as the Beatle song Drive My Car, could have said:  ‘Using a DMS at up to 37mph is all very fine, but I can show you a better time’.

In the auto world premium means ‘the best’. In a very competitive market Audi and BMW can’t afford to look like chumps v. Mercedes when it comes to safety. That is why auto OEMs are telling, yes telling, Tier 1s to use Seeing Machines technology.

Some will naturally dispute what I’m saying. Still, let those with ears to hear, hear.

The writer holds stock in Seeing Machines.

2019: Seeing the rise of driver monitoring

It’s now mainstream news that 2019 will be the year the world realises that driver monitoring systems are the next big thing in the world of auto. After all even Waymo CEO John Krafcik has acknowledged that widespread adoption of autonomous cars is some way away – hence its use of a Back-up Driver Monitor in its vehicles.

Seeing Machines is the leader in this space and it’s great to see some of its OEM customers, such as Byton, BMW, Mercedes at CES 2019. Others that have been developing DMS now realise they will have to choose SEE if they want the best camera-based DMS system.

Smarteye’s move to develop a chip must be seen both as a validation of Seeing Machines’ auto strategy but also as an indication that it is losing out to the Fovio chip in winning OEM business.

Auto revenues underestimated

It’s my contention that in the light of the incessant and pressing demand for its technology Seeing Machines auto revenues from 2020 onwards will be seen to be vastly underestimated.

Examining a detailed note from house broker Cenkos dated 22nd June 2018 is revealing. In it, (page 14) analyst John-Marc Bunce predicted auto revenues of A$63m in 2021, rising to A$213m by 2022.

I’d argue that global penetration of DMS as well as Seeing Machines market share of that penetration have been underestimated. That is already becoming clear to industry insiders and will become obvious to investors very soon.

What I believe will trigger it will be confirmation that Seeing Machines has cracked any of the following: another premium European OEM (Volvo or VW), a US OEM (Fiat Chrysler) and a Japanese OEM (Toyota, Honda, Subaru). I don’t think investors have too long to wait.

To be fair to Bunce he did acknowledge in the above note: “If Seeing Machines, as a similar market leader to MobileEye, manages to win 60% market share of the DMS market, and we assume global penetrating of DMS is 80% in 2026, this would imply the potential for over 50m vehicles pa (which compares to our current forecast of 27m).

It seems perfectly logical to me that a big beast will acquire Seeing Machines long before this becomes a reality — and not for peanuts either. Indeed, it’s strategic value cannot be overestimated and, even as I write, I wonder if discussions are taking place at CES that may eventually result in a takeover.

The writer holds stock in Seeing Machines.

Waymo good news to come

I’m convinced Waymo has chosen to use Seeing Machines Backup Driver Monitoring System (BdMS). (As predicted by “The notorious blogger” a few months ago).

This follows hints on social media, great reporting from US journalist Amir Efrati at The Information about the incorporation of a BdMS in Waymo ‘driverless’ vehicles and the reluctance of Waymo to refute suggestions that it is using Seeing Machines’ eye-tracking technology.

Oh, and let’s not forget an RNS issued by Seeing Machines on September 11th announcing its first BdMS win, which stated other customers were on the way.

Here’s the sentence from that RNS: “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.”

In addition, I’m expecting much more positive contract news on the OEM front in the first quarter of 2019. Plus I’m looking forward to the launch of the Byton M-Byte SUV featuring the Fovio chip in late 2019 in China (US and Europe in 2020). What a great looking car it is.

Funding concerns

Now the share price is in the doldrums and fears of a dilutive fundraise are part of the reason.

Re. funding concerns, I think Seeing Machines will probably need more cash to service this growing demand by the end of June 2019 at the latest.

Note that Jean-Marc Bunce, analyst at house broker Cenkos, stated in a note published on September 19th that there was no immediate cash requirement and that SEE had a “clear cash runway through FY19.”

Still, he did add: “Our model indicates a cash requirement of A$15-20m in FY20, based on these projections.”

My own thinking is that when more OEMs officially come on board, cash requirements to fund that work will be needed sooner, more likely by April 2019.

I don’t see this as a negative, provided there is little or no dilution to existing shareholders. Indeed, Seeing Machines has to grab as much OEM land as possible next year.

I believe it will succeed in the doing the latter.

Funding options

Personally, I don’t think existing institutional investors will be keen to support yet another annual fundraise before more auto OEM contracts are announced. An alternative would be to trawl round new investors but why dilute existing investors with such an unimaginative move?

A CAT-style deal for fleet, with a chunky up-front payment (say A$30-50m) would be a better option.

Alternatively, a very imaginative option might be to raise some debt via a convertible bond. I noted that the new CFO, Luke Oxenham has experience of raising cash via bond issuance. Moreover, with big company experience I’m hoping he will be willing to consider big company actions.

Logically, there must have been a reason this sentence was included in the official RNS: “Luke has substantial experience of integrating business planning, business performance and capital modelling and of accessing various sources of capital from the debt and equity markets.”

Tesla used convertibles in 2014 to raise US$2bn. Twitter also recently used it to raise US$1bn according to Reuters.

So Luke, how about this? A 5-year convertible bond with a conversion price of 8p at around 6%–7% interest. (Okay, I admit the idea came from someone much smarter than me.) I’d prefer a 20p conversion price!

The writer holds stock in Seeing Machines.