Seeing Machines put out a half year trading update yesterday that for entertainment value rivalled a Spaghetti Western. All that was lacking was aĀ thumpingĀ soundtrack by Ennio Morricone, though many investorsāĀ racing hearts would have supplied that as they read the announcement and accompanying broker note.
Certainly, the update was a slight disappointment, albeit a massive improvement on the first half a year earlier.
The Bad
Although the companyās guidance for the full year to June 30th 2020 remains unchanged, house broker Cenkos (in a note littered with errors – see page 3) took the opportunity to downgrade revenue projections, increase losses, indicate that SEE could need cash by end of financial year 2021, all while lowering its valuation to 11.4p from 12.1p. No wonder the price dropped!
Here are the changes for the current financial year:
- Estimated revenues for financial year 2020 reduced from A$47.5m to A$45.5m.
- Adjusted pre-tax loss increased to A$39.2m from A$35.9m
In FY 2021, according to Jean-Marc Bunceās own figures this leads to a funding shortfall of A$4.4m.
The concern in investors minds must therefore be how might SEE deal with this if these figures turn out to be accurate? Itās certainly worth keeping an eye on.
The good
Still, both SEE and Cenkos hint that it may be a problem that will soon find a solution. After all, Seeing Machines āremains in advance (sic) discussions with parties for a licensing dealā sayĀ Cenkos, quoting Paul McGlone. It assumed that this is for aviation and cranes/ferries but may also be for gaming via Qualcomm.
There are also long overdue OEM auto deals that havenāt yet been announced that I believe SEEĀ has won as well as many more due this year. For example, Iām in the camp that believes SEE have already won Volvo and I am hoping that Veoneer will announce a win its forthcoming quarterly update.
Thus, while panicked investors and canny traders have recently been selling, an announcement onĀ a materialĀ deal that puts to bed funding concerns will see a huge and immediate rise in the share price. That is surely why Volantis 1798 have been buying up shares as weak hands let go. They are big and active investors and seek to make huge gains. I expect them to continue buying up to 19.99% and obtain a boardroom seat.
I am sure that they, like me, believe See is fundamentally undervalued and potentially worth billions. Those who doubt this statement need to do more research and then decide for themselves. In the words of Warren Buffett: “Price is what you pay; value is what you get.”
The ugly
I donāt believe Paul McGone would risk his reputation saying deals are expected if they werenāt coming. He has already lost some credibility with the delay over the āimminentā Aviation licensing deal. As a result he canāt be said yet to be ‘walking the walk’, although fleet does seem to be largely fixed. If SEE fails to close the Aviation deal and announce some OEM wins in the next 3 months, heāll be looking as if he is walking like Max WallĀ (watch from 3m 50secs). TheĀ best option thenĀ might be to follow in the footsteps ofĀ previous management and say, ‘Auf Wiedersehen’.
What annoys me is the lack of transparency as per the fleet 20k installations saga.Ā I also don’t like the underplaying of contract sizes and Seeing Machines’ likely share of the automotive market. Yet, stealth has its advantages when your share price makes you vulnerable to a low-ball bid.Ā
The writer holds stock in Seeing Machines
