Toyota or bid announcement?

The good news for investors in Seeing Machines is that I’m hearing from multiple sources that Seeing Machines is set to win a contract with Toyota next.

Apparently, it’s the only driver monitoring system (DMS) that is being specified in multiple Tier 1 bids – as was the case with the big BMW win recently. If true – and I see no reason to doubt my sources’ information – it just goes to further reinforce the global domination of Seeing Machines’ Fovio DMS in the auto industry.

Bid coming?

For that reason, I’m not surprised that there are now 10 market makers for the company on the London Stock Exchange, up from 4 a year ago. Most recently, Berenberg have started broking them. The better news is that I think this German bank may be acquiring shares for a company that plans to bid for Seeing Machines.

I could be wrong about that last assumption: Berenberg may be buying for a German fund. Nevertheless, various sources are warning of an imminent low ball bid – somewhere around 25p-30p a share for Seeing Machines. 

Some of my sources believe it is a Tier 1 auto supplier, others discount that theory. Interestingly, when asked about this in a previous interview back in March, Ken Kroeger did tease: “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.”

While traders might be impressed by that figure, anyone with any knowledge of the auto industry and even an average understanding of Seeing Machines proven technological global dominance in driver monitoring systems shouldn’t be.

If such a bid should materialise I’ve been told by multiple sources that certain chip manufacturers (Intel/Nvidia, Xilinx and Qualcomm) would most likely be prepared to offer a lot more than a measly 30p. So I fully expect a competitive bidding situation to materialise if the rumour turns out to be fact.

Seeing Machines house brokers haven’t issued any upgrades in a long while. Still, based purely on old figures from Canaccord Genuity’s Caspar Trenchard note of Jan 9, (which excludes any figures for the huge Ford win as well as the big BMW win) it must be worth at least 59p a share. That is 30 times forecast revenues for 2019 of A$79.5m = 59p a share.

You could even argue that SEE should be on a higher multiple, such as the 42 times revenue multiple that Intel paid for Mobileye when it went for US$15.3bn. That would equate to roughly 83p a share for Seeing Machines. (This obviously ignores any value for Fleet, Rail and the Caterpillar business).

Yet, the strategic importance of Seeing Machines to the future of transport (never mind vision for robotics) will have been noted far and wide. In such a situation, I’ve been told that the chip companies are often prepared to pay up without months of haggling over the odd US$1bn. It’s small change to them when global domination is at stake.

Even Apple and Alphabet (parent of Waymo) can surely see the sense in DMS, so for what is petty cash for them they could also come in.

The writer holds shares in Seeing Machines.

Seeing Machines secures premium German car manufacturer

Seeing Machines (AIM: SEE) has today announced that it has won a contract with a premium German auto manufacturer in conjunction with a major Tier 1 auto manufacturer.

This is a further striking endorsement of its Fovio Driver Monitoring technology, which is already in the new Cadillac CT6’s Supercruise feature – the car was launched by General Motors this autumn in the US.

The awarded models are scheduled for mass production in 2020. My own guess is the manufacture is probably Mercedes. If it is, the tech is likely to debut in its top of the range S series, which is scheduled for a relaunch in 2020.

Motoroids wrote an interesting article about the Mercedes S Class 2020/21 a few months back.

However, it could equally well be Volkswagen with whom Seeing Machines have been working — they exhibited together at CES in 2017,  or even BMW as there is some evidence to suggest Seeing Machines have been working with them.

What is more important than the actual name of the manufacturer is how much money it is likely to bring into this very undervalued small cap tech play in one of technologies hottest sectors; semi and fully autonomous driving.

This is what Seeing Machines had to say: “According to previously given guidelines, this may be considered a Medium value program (from A$10M-A$25M revenue) based on the initial included models and lifetime volume projections, with the potential to become a Large value program in time (>A$25M revenue).  It is worth noting that volume projections can change materially, up or down, and as is typical in automotive industry contracts, there are no guarantees beyond engineering milestone payments.”

For me, this contract from another of the world’s leading car companies establishes that the Fovio Driving Monitoring system is best in class. Moreover, given the contract could be worth as much as 50% of Seeing Machines current market cap, it looks very undervalued.

Certainly, Seeing Machines seems very confident, as  Nick DiFiore, General Manager of Automotive at Seeing Machines, commented: “We are proud to be awarded this benchmark DMS program from both an OEM and Tier 1 with state-of-the art requirements.  Their confidence in us is a testament to the leading-edge nature of our FOVIO DMS technology, which is the culmination of years of innovative development and hard-earned Automotive application expertise by our team.  We look forward to delivering this leading-edge DMS program and further delivering our new FOVIO platform products to our growing Automotive customer base worldwide.”

Lorne Daniels, analyst with house broker FinnCap, believes that Seeing Machines is now the “go-to supplier for DMS in automotive”.

In a note published today, Daniels wrote: “Euro NCAP’s recent announcement mandating DMS as a key criterion for vehicle safety has sharpened the timeline and focus for OEMs; it takes years to design a model and if they want a 5-star rating after 2020 they will need to integrate a good DMS. Fovio is proven, reliable and quite literally, already on the road; a natural choice for the global automotive industry.”

The writer holds stock in Seeing Machines.

Seeing Machines develops hardware chip

Seeing Machines’ announcement today that it has launched its first generation ‘Fovio’ embedded hardware chip has sent the share price flying. The reason being it appears strengthen its technical leadership in transport tech for fatigue and distraction monitoring while also broadening its reach, towards a diverse range of Artificial Intelligence and ‘Internet of Things’ applications.

Lorne Daniel, analyst at house broker FinnCap, commented: “The latter is new, and hints at an even broader market than previously supposed. Current contracted OEM vehicle deliveries (assumed to mean GM 2017 CT6 Cadillac with SuperCruise) are on track to launch in 2017 as software; however, the FOVIO chips are likely to be used in the second generation rollout to the entire GM range as agreed in the follow-on OEM contract. Embedding the software in a chip reduces the cost and time to market for OEMs and their tier-1 suppliers, facilitating mass market rollout since driver distraction is becoming a critical issue for the industry.”

There has been no update on its automotive spin-out, although technical progress clearly continues. Ken Kroeger, chief executive officer of Seeing Machines, commented in the RNS: “I am delighted to announce the introduction of our FOVIO DMS Chip which, as a World first, further cements Seeing Machines’ position as global leader in the Driver Monitoring industry. The FOVIO Chip will greatly reduce the cost of DMS deployment, helping to accelerate not just our growth but mass market uptake of DMS technology in general. This product will become the key offering of FOVIO, our new stand-alone automotive business that is currently being structured and staffed.” 

One assumes that any hard negotiations taking place with potential investors in the auto spin-off should be made easier by this announcement. Certainly, it can only make SEE a more attractive target for any cash-rich company wishing to dominate this space.

With all the talk about Apple buying McLaren recently, one wonders if this company is on its radar? Certainly, See’s market cap is too small given its leadership in the DMS space.

Q&A with Ken Kroeger

Below is a brief Q&A that Ken Kroeger, chief executive officer of Seeing Machines replied to late today (Australian time). Unlike a robot he still has to sleep – still, I am sure SEE are working on that.

1) Why was the news announced now, 2 weeks before the results? Is it to strengthen the hand of SEE in negotiations with the spin-off partners for Fovio and telemetric partners re. Guardian?

We demonstrated the chip to the first tier-1 this week and our Nomad felt that the market should be informed at the same time considering the quantum of the investment that has been made in the design, development and first runs of samples, which is now in the millions of dollars as it’s been two years of work from a sizeable team.

   

2) How does this news affect the auto spin-off? I’d assumed that a chip manufacturer/designer such as Intel or Arm might be a possible investor – does it make that more or less likely now?

The chip has been in development for two years. The semiconductor companies are all interested in our business and would all like us to migrate to their silicon in order to drive sales of their offering. We have a current silicon strategy working with an unnamed major partner that delivers not only the required hardware performance, but also the margins that are essential to the long term success of the auto business. The technical team has been built specifically around this particular silicon technology so a change would require additional investment.

3) How would you describe the significance of this move?

It’s an amazing step when you think about the fact that until two years ago everything we had ever sold ran on a very expensive computer and that everything ran on the Windows platform. Here we are today, running higher performing software on a device that we can sell for a tenth of the cost of that older processor and still have healthy margins in the business.

   

 4) Do you have any information on how much cheaper it will make the cost of DMS deployment?

We can say that if it was available for the first generation OEM automotive product, it would deliver a greater than 15% saving to the end price of the system. A significant number when you’re buying things such as millions of cars.

My Conclusion

As it’s well known that the growing ambitions of this company require more funding I’m very keen to hear more about how this development plays into Seeing Machines’ overall strategy.

Its results presentation will be on October 3rd, which should be a very interesting day.

The writer holds stock in Seeing Machines