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 a thumping soundtrack by Ennio Morricone, though many investors’ 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 company’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 Bunce’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? It’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 “remains in advance (sic) discussions with parties for a licensing deal” say 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 haven’t yet been announced that I believe SEE has won as well as many more due this year. For example, I’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 on a material 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 don’t believe Paul McGone would risk his reputation saying deals are expected if they weren’t coming. He has already lost some credibility with the delay over the ‘imminent’ Aviation licensing deal. As a result he can’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, he’ll be looking as if he is walking like Max Wall (watch from 3m 50secs). The best option then might be to follow in the footsteps of previous management and say, ‘Auf Wiedersehen’.

What annoys me is the lack of transparency as per the fleet 20k installations saga.  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. 

The writer holds stock in Seeing Machines

3 thoughts on “The bad, the good and the ugly

  1. If SM needs to issue more shares within three years, Paul will have lost all credibility. However, if they raise that hypothetical capital (plus more) on an exchange like the NASDAQ, he will be an overnight hero (not to mention multi-millionaire). Since the valuation could/should then double or triple with proper liquidity and visibility.

    I’d say the update was not bad. Not great either. That Cenkos guy has been wrong literally for the entirety of his coverage of SeeingMachines, I hope he really doesn’t have THAT much sway in the actions of SM shareholders!? I think that in the absense of new news (we already assumed Fleet was 20k+) the stock trickles lower as half the shares were bought 50% lower less than a year ago! There remains lots of unrealized profits between the current share price and 3 pence! Ugh.

  2. Do you think management is practicing the philosophy of “no news is good news” ? Or do they simply not prioritize long-term investors ever being rewarded for their faith and patience in this awesome technology? Gravity and time pulls this stock lower. It’s now down over both the 3-month time frame and 12 months (although the longer period will begin to have much easier comps – ugh – and will look better without actually feeling better). This all despite global stock markets ripping higher.

    Someone mentioned in an earlier post that the executive shares vested if the stock got to 14 pence. Was that speculation or did a good analyst uncover that disclosure? Because if true, I will still hold on to hopes that management and shareholders have some alignment of interests…

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