The bad, the good and the ugly

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 investorsā€™Ā 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 companyā€™s 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 Bunceā€™s 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? Itā€™s 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 ā€œremains 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 havenā€™t yet been announced that I believe SEEĀ has won as well as many more due this year. For example, Iā€™m 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 donā€™t believe Paul McGone would risk his reputation saying deals are expected if they werenā€™t coming. He has already lost some credibility with the delay over the ā€˜imminentā€™ Aviation licensing deal. As a result he canā€™t 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, heā€™ll 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

Seeing Machines storms CES

All the news coming out of CES is very positive for Seeing Machines and Iā€™m more confident than ever that it’s on target to take 75% of the global DMS market over the next few years. (Naturally,Ā Seeing Machines itself and its broker Cenkos prefer to state a target of 30-40% publicly).

The tie-up with Qualcomm was probably the highlight of the show for me and itā€™s great to hear that theyā€™re both working with a ā€œglobal premium automakerā€. It has been suggested it is a new OEM, if it is I assume a more detailed RNS will eventually be published.

Yet theĀ partnership with Qualcomm, apparently at the latterā€™s instigation, may also be much more significant than many realise. It opens the possibility of marrying industry leading eye-tracking with chips that can go inside mobile devices and VR/AR headsets. It is potentially a huge opportunity and some speculate that aĀ lucrative licence deal is possible for Seeing Machines. (If so, let’s hope it arrives sooner than the “imminent” Aviation licencing deal that we are still waiting for!).

Further out, robots/cars should soon be capable of displaying empathy using eye-tracking that can also interpret cognitive load/read facial gestures.

With EU safety legislation now law, and other countries set to follow Europeā€™s lead, the near-term future is increasingly bright for SEE. Indeed, this is a company that should be worth billions right now.

Volvo

Strangely, though, there has been silence re. Volvo. My industry contacts tell me it has finally decided who will be supplying its DMS and Iā€™m pretty confident it will be Seeing Machines as itā€™s the only system that can accurately tell if a driver is incapacitated – a featureĀ teased by Volvo in early 2019.

I expect it will first feature in the 2021/22 Volvo XC90 but Volvo are staying tight lipped as are Seeing Machines and the likely Tier 1, Bosch.

While the share price has been motoring, the next trading update (expected in a week or so) should provide further proof that fleet is set to comfortably beat full-year estimates.

This is a stock on the move and Iā€™m increasingly confident that a huge re-rating is just a matter of weeks away.

The writer holds stock in Seeing Machines.