Panmure puts 28p price target on Seeing Machines’ auto division

In a note published on September 18th Sanjay Jha, an analyst at independent broker Panmure Gordon, reiterated his ‘Buy’ recommendation and placed a 28p price target on Seeing Machines.

The price target is lower than the 30p target he had in June but is still a remarkable endorsement by an independent analyst of the company’s domination of the global market for automative driver monitoring systems given all that has recently taken place in fleet.

In the note Jha  concluded: “We welcome the rationalisation of the Fleet business which has been a major distraction to the much larger opportunity in the Automotive sector, which saw the share price peak at 14p. Our investment case has been based almost entirely on the upside from the Automotive opportunity and continue to assume that the Fleet business has no value. Seeing Machines is in the pole position to capture at least half of the Driver Monitoring System (DMS) market with competition effectively limited to one other player (Smart Eye). With design wins with five OEMs and many more to come, we foresee a growing royalty revenue stream for many years to come.“

Endorsing the recent appointment of Jack Boyer to Chairman and the appointment of Ryan Murphy as COO, Jha commented: “These are the first steps in what we hope is a major overhaul of the Board and the executive team.”

Jha forecasts sales of A$37.6m for the 2019 financial year, rising to A$50.5m in 2020. “We estimate cash deficit of cA$5m by FY20, which arguably can be covered in debt markets. However, we also believe that the management can cut costs further particularly in Fleet engineering.”

Pointedly, he appears to have a dig at the information flow and forecasts coming out of Seeing Machines: “We note that the management expects revenues in FY19 to be approximately in line with FY18. We believe they should stop giving guidance until they have a good handle over internal information systems. In the last month, we have had two different versions of Guardian units delivered and expected to be delivered. Our forecasts, for what it’s worth, is based on Guardian data provided by the CEO today and our expectations for the Automotive sector.”

More auto wins

I’m personally confident that Seeing Machines will soon announce some huge auto wins: Toyota, FCA and Volvo. Other OEMs that I believe will fall to Seeing Machines include: Mazda, Honda, Subaru and Audi.

Indeed, in a previous note (published 19th June) Jha confirmed: “We believe that Smart Eye has been launched in first generation models of BMW, Audi and Jaguar Land Rover. At the time, Seeing Machines wasn’t allowed to bid for BMW and Audi as they were tied with Takata’s commitment to GM. However, we understand that Seeing Machines have now displaced Smart Eye in second generation BMW and we expect they will replace Smart Eye on future Audi models too. As we have highlighted previously, Seeing Machines has more robust licensing model with two offerings: Software and System on Chip (SoC), the latter allowing OEMs to deploy DMS across models more quickly and efficiently. Smart Eye doesn’t have its own silicon expertise and is heavily reliant on Aptiv to win platforms.”

The writer holds stock in Seeing Machines.

Euro NCAP agrees camera-based DMS crucial to prevent driver distraction

Last week I spoke with Richard Schram, Technical Manager at Euro NCAP. For those backing camera-based DMS systems he provided a very positive update on the organisation’s plans.

He agreed that the problem of driver distraction could not be solved without cameras but he doesn’t think it is feasible to mandate that by 2021 (for 2020 the coffee cup DMS is what will be pushed for, as it’s easily achievable). By 2022 he expects EURO NCAP to be incentivising the introduction of AEB linked to camera-based DMS. Moreover, Schram agrees that: “by 2024 camera-based DMS will be part of most European passenger cars”.

Given the 3-year lead times for the introduction of technology into cars, it’s clear why the more safety-conscious car manufacturers are moving swiftly to integrate camera-based DMS systems into future car models.

I asked Colin Barnden, Lead Analyst at Semicast Research, to put Schram’s comments into context and he said that it “clearly confirms that Euro NCAP and the EU are in alignment”.

The he went on to explain how:

  • “Drowsiness and attention detection (DDR-DAD) – coffee cup : mandate introduction from 1 September 2021 to 1 September 2023. Euro NCAP 5 star rating starts with these systems in 2020.
  • Distraction detection (DRD-ADR) : mandate introduction from 1 September 2023 to 1 September 2025. The importance of the comment, “[in] 2024 camera-based DMS will be part of most European passenger cars” cannot be overstated and confirms my understanding that distraction detection systems will only be camera based. This will apply also to vans, coaches, buses and trucks – a total of between 20-25 million vehicles per year in my estimation (and that is just the EU28).”

Barnden added: “As previously mentioned the adoption rate for camera-based DMS will be dictated by the rollout plans of the OEMs and they are well ahead of the advisory bodies (Euro NCAP, Consumer Reports) and the legislative bodies (the EC, NHTSA) already. My attention has moved from Europe to where’s next.”

His opinion is that Japan is next. “FotoNation, Seeing Machines and Smarteye are all making a concerted effort there and that is a clear signal of OEM interest. Development of mobility services (eg Waymo) are much more advanced in the US.”

Personally, I’m expecting Seeing Machines to clinch OEM a big contract with Toyota in the next few months (then Honda), as first mentioned in my blog article: Seeing Machines set to win 75% of global DMS market. In that article I also forecast that further progress in the US is close at hand.

I think the evidence is clear that Seeing Machines is set to be the next Mobileye.

The writer holds shares in Seeing Machines.