I spoke with 2 fund managers last week about Seeing Machines. I won’t reveal their names here but what they said reinforced my opinion that the revelation that fleet is well and truly fixed, coupled with proof that breakeven is imminent (when the Aviation licensing deal is signed), will really move the share price in the very near future.
The first fund manager knew and liked Seeing Machines but, because he runs a large fund, can’t invest in companies below a ÂŁ200m market cap.Â
The second fund manager used to hold Seeing Machines but sold because it appeared to have too many issues and there was no sign of breakeven.Â
Their views are probably replicated ten times over with other fund managers, which means that there is a large weight of money ready and willing to come into SEE once it effectively communicates the fact that fleet is fixed and breakeven is coming very soon.
Admittedly, there must also be holders who have lost patience, particularly as the company appears to be in no rush to provide detailed updates on the progress on Fleet. I’m personally tired of hearing the figure of 16,000 fleet installations given out for months on end.
Fleet
My own view, as revealed at the CMD, is that Fleet installations must be at least 20,000 right now. It’s therefore great to discover that this figure appears to be correct, since it has been published on the website of Seeing Machines’ Latin American distributor in Chile. It has on its homepage the words: “Guardian salva vidas en mas de 30 paises del mundo monitoreando mas de 20.000 vehiculos en tiempo real.” Translated into english it means: “Guardian saves lives in more than 30 countries in the world by monitoring more than 20,000 vehicles in real time.”
Given this is the case, why isn’t Seeing Machines communicating this to investors and the wider market? Moreover, why isn’t Cenkos upgrading its projections?
Instead, the market is still being provided with the laughable estimate from Cenkos that fleet will only deliver revenue of A$20.9m for the full year 2020, based on uber conservative numbers that are even below Seeing Machines unrealistically low estimate of 27k-30k installations.
This is what Cenkos wrote in its note of 23 September, 2019 “….our Fleet connection forecasts are based on connections below the guidance of 27k-30k”.
One might reasonably ask for these projections to be updated. Still the questions remains, why haven’t they been updated? Okay, Cenkos is the house broker and is pretty dependent on Seeing Machines for a steer, so why haven’t they had it?
Reading an old blog post on Safestocks, I was reminded how management priorities differ from those of private investors.
There is an additional reason, I believe. Naturally, a prudent new CEO wants to have something up their sleeve to impress the market. Let’s not forget that Seeing Machines has disappointed investors many times over the past 5 years. The onus really is on him to deliver and keep on delivering.
The good news is that I think that is what is in store for investors in Seeing Machines. In short I expect fleet upgrades by the interims (at the latest) and then again for the finals. Forget estimates of 27k-30k fleet units for this financial year, backed by uber conservative figures from Cenkos. The actual figures for installations should be nearer the 35k mark, which will blow away the existing estimates.
In addition, I expect such upgrades to be preceded by an RNS announcing an aviation licensing deal with with L3 Harris and/or CAE, that provides an upfront payment and ongoing royalties. If it lives up to the billing from Paul McGlone in a recent interview I expect it to bring forward breakeven from the end of calendar year 2021 to June 2020 this financial year.
That news, when eventually delivered, will cause a huge re-rating as IIs, who’ve lost interest or sat on the sidelines, jump into this stock.
For long suffering investors in Seeing Machines vindication is close at hand.
The writer holds stock in Seeing Machines.
There’s another press release in spanish that mentions the 16,000 “commercial vehicles” figure. I completely agree with you in general that they should do more to tell the positives, but in this case, I believe the context might be Fleet+Mining = the total “vehicles.” I hope I’m wrong… With that said, I track the kilometers from Seeing Machines’ website and my estimate of km/hour/truck has grown by about 18% since June 30th, which would imply about 19,000?
Side note, what did the two research Brokers do after the CMD? Did any update their price targets?
Also, a little over a year ago the European regulation-related “speculation” caused the stock to nearly double, now it’s permanent and spreading across the globe and the stock literally didn’t move. What gives?!
Your points/anecdotes about institutional investors are very intriguing. I’d add, though, that half the shares out there were placed at 3 pence (that still makes me want to puke and/or find Ken to tar&feather him)… so taking profits after a 45% quick gain wouldn’t be crazy. This is a potential overhang for a while, I predict. Plus, now 7 institutional investors (disclosed on AIM) own just under 47% of the stock! This undoubtedly “crowds out” potential new institutional shareholders. Brexit “noise” surely doesn’t help.
Questions you or anyone else reading could help with:
What figure do you believe Seeing Machines will collect “per vehicle” in automotive, assuming it’s FOVIO-based?
Same question on Fleet, both per installation, and also per month. The update implied the monthly cost would go down to $6 (AUD or USD?) But unsure of monthly revenues. Or maybe I interpreted incorrectly.
Why does it seem as if SmartEye “gets” to disclose more? I like SM’s humility and long-term character and caliber, I just dont want the perception to influence future reality.
Thanks for your notes – please keep them coming – this company is going to reward all of us long-tem shareholders for sticking around these last 6+ frustrating (and dilutive) years…
Mitch, I will attempt you questions
1) Auto per vehicle. Pure software is A$10-15 , the Fovio chip more like A$20-25
2) Fleet, something like A$1k upfront (for hardware) and A430-50 pcm for monitoring, makes the current forecast for FY20 not credible at A$20m, they would have to give it away for free for that to be correct.
3) Smarteye, they tend to talk in models rather than OEM’s. I note they claim a 13 model win in Europe a few years back, assumed to be JLR but never made any progress, I expect that comes to SM as did BMW
Awesome, thank you… and I realize those answers are your best, but intelligent guesses.;)
I agree with you their outlook isn’t credible. However, the degree top which it is too low likely depends on the mix of direct Fleet vs distributed Fleet?
Again, another good reason for the company to provide a more detailed update on Fleet!
So just to complete my train of thought / rationale… if you take a haircut on worldwide auto sales: let’s assume 75 million units, multiply it by 60% for a conservative estimate of the number of new cars with DMS (pundits say 70%), and then multiply that by 30%, a conservative estimate of market share for Seeing Machines’ share of DMS cars (heck, it could be half or more!), multiplied by the lowest number in your auto ASP estimate ranges… that’s A$135 million annually! Fleet by then could or should be generating annualized revenue of at least A$25 million. Caterpillar probably adds about A$10 million, Aviation wont be immaterial… Getting to A$200 million in revenues in 2024 or 2025 should not be viewed as wildly optimistic. And as a result, this company better not sell out for less than 0.50 pence any time soon.
Am I thinking about this correctly? What am I missing? What multiple on revenues would be appropriate in your view? What level of profitability could or should be achieved (operating margins) at that revenue level – an IP-focused strategy usually has an above average OM (Autodesk’s is 9%, Microsoft’s is 34%, even Caterpillar’s is 15%)? Wouldn’t it be awesome if the company discussed the future in this way!? Hopefully management continues to improve transparency and accountability with us investors …