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.

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

  1. Chris
    Good article. Jha has valued Seeing only on Auto and although I can understand (for now) his stance on Fleet and Aviation (yet to record any sale of note), surely Off-Road and even Rail have some value?
    And even Cenkos acknowledged some value attributable to BdMS.
    Other than that, for now, 28p looks a fair valuation.

  2. Hi Roy,

    I agree fleet, rail and aviation certainly do have value. Still, I think Sanjay Jha was making a point about relative valuations and having a little dig at the way SEE communicated re. Fleet. Rest assured, I think upgrades will soon be the order of the day – not just for Auto but for Fleet and Aviation allso. Still, a respectable analyst has to be more circumspect.

  3. The important point about his price target is that it implies Seeing Machines trades up to approximately 16x his 2020 estimate of sales (converted to and from AUD, USD, and GBP – why does it have to be so complicated!?). Thankfully Mobileye was acquired for approximately 20x sales so there’s some reasonableness to the target.

    Regarding the “cash deficit,” as shareholders, we should strongly encourage the company to consider raising any incremental capital via an “up-listing” onto a more liquid exchange. For instance, if it raised equity capital on the Nasdaq, I am highly confident that the stock would trade above 12x revenue today, and be eligible for inclusion in the Russell 2000 index. In short order this company would likely become a publicly-traded UNICORN!

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