Time to re-rate SEE 2.0

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Seeing Machines’ (AIM: SEE) full year results indicated strongly that the issues that affected its fleet division are fixed and I expect news flow over the next few months to drive a significant re-rating.

In a note issued yesterday, house broker Cenkos upgraded its price target to 12p. Analyst John-Marc Bunce explained: ‘We believe the turnaround in fleet will drive the company to profitability in under 2 years with the cash runway looking sufficient even before accounting  for licensing deals or financing against recurring revenues.”

This was reiterated in a webcast from CEO Paul McGlone today in which he assured investors: “Fleet is fixed and starting to perform”. He added that there were no plans for a dilutive equity fundraise in his 3-year plan. Moreover, an aviation licence deal (expected to happen before year end) would effectively mean the company is funded to profitability.

Fortunately, the new CEO seems to have pressed the reset button and confirmed that over the past 6 months he has made significant changes: “The business is now focused on profitable revenue, we don’t chase strategic business.”

Cenkos has pencilled in a conservative (how I dislike that word) A$47.5m revenue figure for the full year to June 2020, with a pre-tax loss of A$35.9m. Thereafter losses fall in 2021 to A$10.6m and SEE reaches profitability in 2022 (A$47.5m).

I think these estimates will be revised over the course of the coming year, bringing forward breakeven by at least a year.

After so many years of disappointment and failure to deliver against financial targets I think this will be a transformational year for Seeing Machines. It will hinge on these 3 things happening:

  1. Acceleration in the installation of Guardian in fleets and cheaper units produced in H2.
  2. More auto OEM contract wins.
  3. Aviation licence deal by the year end.



Fortunately, signs look good for all three.

  1. Fleet growth should accelerate further this year as Cenkos confirms: “We believe the guidance for 27k-30k connections at the end of FY2020 is conservative and underpinned by a strong pipeline.” Moreover, the unit costs of Guardian are due to come down significantly from the the second half of this financial year, driving more profit. In addition, McGlone today revealed that SEE is expecting solid growth in the US market.
  2. I’m expecting two existing US customers to extend their existing contracts and Seeing Machines to win two more OEMs in Europe very soon. This is aside from continued progress in Asia over the course of this financial year.
  3. We now know (after the webcast) that Aviation licence deals are coming soon. That will improve the bottom line without involving significant risks and costs.

Lest we forget, there is also a bigger game afoot, as Bunce pointed out in his note:

“… one could argue that Seeing Machines has greater strategic value than Mobileye has as we highlight the ever-increasing importance for reliable face, eye and emotion tracking in the real world for many applications beyond automotive and transportation; from retail, medical, personal robots and personal computing devices. This value would be seen not just but major chip and software platform providers like Intel, but also the world’s tech giants.”

I’d advise all investors to do their own research and the above is my opinion only.

The writer holds stock in Seeing Machines.

4 thoughts on “Time to re-rate SEE 2.0

  1. That webcast was the first step, and a materially positive one at that, on the path to new highs… For the first time in a long time, I believe the company’s management is thinking like an owner/shareholder! Finally… this ship is sailing.

    Cenkos was wrong by a mile on the way down… they’ll be wrong by a mile in the future (on the way back up).

    • I’m encouraged by the Chair, Kate Hill buying in and paying market price. Real show of confidence. There is also some alignment of interest re. Paul McGlone’s share incentive scheme – though it would be good to know the actual targets.

      Definitely feels as though management are listening to shareholders and trying to improve on communications. Well done to them. Seeing Machines is definitely back on track and moving in the right direction. There will be some tempted to take profits as it rises but this has got a lot further to go imho.

  2. What do you believe SM stock will be worth in one year? Will it be around in 3 years or aquired, in your humble opinion? My valuation model has it worth about 4 times where it is currently trading today, without considering the additional potential developments that could occur between now and the end of the company’s FY2020…

    Side note, strange that SmartEye works with NASA (has for a while according to Twitter feed) and SM doesn’t (or not that I am aware of)…

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