Will Seeing Machines’ likely Nasdaq listing elicit a bid?

Rumours that Seeing Machines is planning a dual listing on Nasdaq gained further credibility with the attendance of CEO Paul McGlone at a recent shindig organised by house broker Stifel to promote that very idea to clients. The question is, might a dual listing be the catalyst for a bid?

It’s long been known that a dual listing on Nasdaq has been under consideration at the Aim-listed tech company for a number of years. At a previous investor meeting held online on 24th November 2021 Paul McGlone stated (in answer to the question: ‘Are there any plans to move to a US market?’): “It is in our plan, it’s only sensible that we talk about it. I do imagine that we will end up there but I want to see some additional momentum before we flick the switch on that particular transaction.”

With Seeing Machines coming to dominate interior monitoring with its class-leading DMS/OMS system, it appears that time is drawing close. Indeed, some argue that such a listing would be guaranteed to increase its US profile and enable it to secure more backing from US tech funds.

Stifel served as joint bookrunner on an $85 million dual-listing Nasdaq IPO for Renalytix AI back in July 2020. The price tripled shortly thereafter but has since come right back down. More successful was GW Pharma’s dual listing back in 2013, before it was eventually acquired.

Mobileye IPO

A more appropriate comparison is the Nasdaq IPO of Mobileye, floated for US$5.3bn in 2014, bought by Intel in 2017 for $15.3bn and now in the running for a potential $50bn spin-off IPO, backed by Morgan Stanley. 

Examining the prospectus for the original Mobileye IPO in 2014, indicates that Seeing Machines is set to be a superior business. Not only is it dominant in auto but also in fleet and aviation. Moreover, its robust technology has applications well beyond the transport sector. 

Expected date of dual listing

While it appears that no firm decision has been made by Seeing Machines regarding a precise date for a dual listing, I believe that the much-mooted plan is moving inexorably forward.

My sources indicate that (barring a market meltdown) it is most likely to happen around Spring 2023, by which time Seeing Machines is expected to have achieved several milestones that will have more US tech funds eager to jump in. These milestones include:

  • An order pipeline of $A1bn in auto;
  • A fleet operation that has proven it can scale, boosted by the third generation of its Guardian product, which will be easily incorporated into telematics products for trucks and buses;
  • The launch of a dedicated aftermarket division to sell its Guardian product to niche manufacturers of buses and trucks, with monitoring services sold to their customers; and
  • A licensing deal in the aviation sector.

I also believe that there is an outside possibility that increased momentum in auto and fleet, with Seeing Machines pretty much set to win every contract it contests, could bring forward the date.

Will QC gatecrash the party?

The question is, will the host of chip companies who want SEE’s IP wait until its value has been boosted by a Nasdaq dual-listing IPO before swooping? Moreover, will Qualcomm’s Christiano Amon risk another chip company, or one of the three Amigos (Amazon, Alphabet and Apple) eating his lunch? It doesn’t seem likely. The Arriver acquisition proved Qualcomm fights for want it wants. 

Given the crucial importance of Seeing Machines vision technology to Qualcomm’s Snapdragon Drive automotive stack it seems logical that he will act quickly, to forestall any rival acquiring this important strategic partner. 

Sector ripe for consolidation

The sector is certainly ripe for M&A deals. Even peripheral DMS players are starting to be bought. In fact, one took place late in 2021, with Lattice Semiconductor acquiring computer vision company Mirametrix. The latter has a rudimentary DMS and, according to unnamed sources, went for a ‘huge multiple’ in a private deal. You can see its offering here: https://ir.latticesemi.com/investor-overview/presentations

Note the slide detailing some of the consumer uses for its technology entitled ‘Consumer Challenges’ — it may ring a (door)bell for some investors. The wide range of markets in which SEE’s technology can be used, aside from its transport applications, is one reason it is an attractive target.

Smart Eye would probably love to be taken over as would Cipia. However, SEE is the demonstrable market leader and will be the one that all the major players covet. 

As ever, if you’ve found any value in this article please consider making a donation to a charity of your choice.

The writer holds shares in Seeing Machines.

A tribute to Irving Kahn: a legendary value investor

The article below, Investment lessons from Irving Kahn was originally published for the UK Motley Fool website back in 2010. The reason I am replicating it here and not amending it is that I’m proud to say that after it was first published I received a very kind email on his behalf from Andrew Kahn, his grandson, who worked with him at Kahn Brothers.

In it he wrote: “Mr Kahn read your article and was very pleased with its accurate assessment of the firm and your attention to the often-overlooked aspects of value investing”.

I’m sad to say that Mr Irving Kahn passed away in 2015 at the age of 109. However, his reputation remains as does the firm he founded and the books he helped write.

Let me quote again from the email I received: “Regarding books to which Mr. Kahn has contributed, he was Ben Graham’s teaching assistant during the period in which Mr. Graham wrote Security Analysis, and, to that extent, he contributed a considerable amount of research to that text. Another book that comes to mind is a small 50-page monograph titled Benjamin Graham: The Father of Financial Analysis that he wrote in the 1970s with Robert Milne for the Financial Analysts Research Foundation. At the time the Research Foundation was the publishing imprint of the CFA Institute, but it is now known as the ‘Research Foundation of the CFA Institute’.

It is therefore my hope that by reading the article you’ll learn from the wisdom of Irving Kahn and therefore avoid catastrophic investment mistakes. Should you wish to delve deeper you can read the books he helped write.

Investment lessons from Irving Kahn

This centenarian has the secret of long profits

At 104 years old Irving Kahn can aptly be described as the grand old man of value investing. While he may not be able to tell us much about the secret of longevity, he has much to teach about profitable investing.

Unbelievably, after 80 years on Wall Street not only is he alive, he is still active. Currently, he’s Chairman of Kahn Brothers Group, a privately-owned investment advisory and broker-dealer firm that he founded in 1978. It has approximately US$550 million funds under management.

Background

He is a value investor right to his marrow. This should be hardly surprising as he learnt from the master, serving as the teaching assistant to Benjamin Graham at the Columbia University Business School.

He was an original founding member of the New York Society of Security Analysts in the 1930s. He was also a co-founder of the Financial Analysts’ Journal and a director of Grand Union Stores, Kings County Lighting, West Chemical, and Wilcox & Gibbs.

Investment philosophy

On the website of the Kahn Brothers it explains that the company employs:

  • As bottom-up stock selection approach
  • Invests in undervalued equity securities that are usually out-of-favour

To determine which security to invests in it uses:

  • Asset valuations
  • Operating performance metrics
  • Long-term fundamental business prospects.

Moreover, “unlike many investment managers, we spend a considerable amount of effort evaluating the downside risk of every investment.”

Interview

In an interview Irving Kahn gave in 2005, he and his son Tom, Kahn Brothers president, outlined in more detail Kahn Brothers’ views on investing.

They regard value investing as an ‘art’ rather than a science, involving qualitative factors as much as quantitative. For that very reason, just as the best artists can occasionally produce poor work, even the best investors will make mistakes.

However, to reduce this risk and ensure a ‘margin of safety’, they follow these rules:

  • Favour those ‘out of favour’. Invest in companies that are either little-known or out of favour. The former tend to be smaller companies.
  • Low or no debt. They like companies with little or no debt and avoid highly leveraged companies.
  • Management stake. They prefer management that owns a lot of stock as they have the same incentive as shareholders to maximise the value.
  • Red flags. Companies that have volatile cash flows, high leverage and poor management should be avoided.
  • Earnings potential. Go beyond the latest set of results to determine the earnings potential of a business.
  • Patience. They are long-term investors with a typical 3-7 year, or longer, time horizon. If there are very few value stocks to be found, they are comfortable holding cash.
  • Identify catalysts. The market’s recognition of value is often dependent on a catalyst —an event that corrects the margin of safety discount. The identification of potential catalysts is therefore an integral part of the research process. Without a catalyst, a prospective investment can remain underpriced indefinitely and thereby result in a mediocre return.
  • Research. Do your own homework and pay no attention to what you see in the papers.
  • Be a contrarian. Maintain a strictly contrarian approach on the basis that half the price of a common stock is usually fashion.

A$23m Stellantis win for Seeing Machines

It seems likely that the OEM win announced today by Seeing Machines is for Stellantis, using Magna’s driver monitoring system (DMS) in a mirror.

In any case, given the minimum lifetime value is A$23m, it is a pretty safe assumption that it will actually end up being at least three times that figure.

Cenkos close to upgrading

Broker Cenkos has maintained its 20p price target but admits it really could be lowering its discount rate and bumpting up that target price, given Seeing Machines’ accelerating win rate that is leaving competitors far behind.

Here’s the concluding comment from Marc Bunce, the Cenkos analyst covering Seeing Machines: “This new automotive DMS award comes less than two weeks since the last which further supports our view that Seeing Machines win rate and market share in automotive Driver Monitoring Systems are increasing. It is also reassuring to hear that this view is now also publicly supported by Nick DiFiore with his expectation for 40% market share by volume now marginally ahead of our expectations which represent around 38.5% by volume to 2030. We iterate our Buy recommendation and 20p valuation and note there remains significant upside in this from reductions in our discount rate, small increases in our Automotive market share expectations, increases in our cautious aftermarket expectations and the addition of aviation (we will incorporate aviation when we get visibility into meaningful contributions).”

Certainly, when Seeing Machines announces the wins I referred to yesterday I expect Cenkos to upgrade.

The writer holds stock in Seeing Machines.

Takeover thesis maintained as Seeing Machines dominates global driver monitoring market

Despite the ongoing market falls, my sources (note the plural) indicate that Seeing Machines is winning ‘everything it goes for’. In particular, I’m expecting confirmation of another sizeable contract win in Japan, another huge one in the US and plenty of very positive Fleet news. Thus, my conviction that Seeing Machines will soon attract a bid remains as strong as ever.

Further contract wins

My sources indicate that another Japan win announcement is very, very close. I hesitate to use the word ‘imminent’ but you get the idea. In addition, I’ve heard a whisper that GM has awarded a huge Lidar contract for Ultra Cruise and thus expect that Seeing Machines will soon be getting confirmation of a huge contract. I anticipate this to occur within a couple of months.

I’m also expecting Seeing Machines to win Toyota and announce further expansions with Ford and Stellantis in due course. Lastly, the significance of the recent win of Renault via Qualcomm’s 3rd Generation Snapdragon cockpit platform shouldn’t be ignored. What it indicates is that Seeing Machines will be in every car that has Qualcomm’s system.

In addition, I hear Fleet is doing very well and there will soon be some significant announcements regarding aftermarket sales and a further partnership that should enable it to scale up the introduction of its driver monitoring technology in Europe to comply with the forthcoming safety legislation. 

Clearly, despite the gyrations in its share price, the business is clearly going from strength to strength. That is certainly a claim made by company executives themselves in recent interviews, such as this one with Nick Di Fiore who heads up automotive but also this video with CEO Paul McGlone. It is backed up by leading independent industry analyst Colin Barnden of Semicast Research, as well as financial analysts from a growing number of brokers; Cenkos, Panmure Gordon, Berenberg, Stifel and Peel Hunt.

In short, my thesis that Seeing Machines takes 75% by value of the global DMS/OMS  auto market remains fully intact, a market that could be worth A$1bn in 2025. That figure ignores the market represented by trucks, trams, trains and aviation – global markets in which Seeing Machines is set to dominate.

I, therefore, maintain that a near-term bid for Seeing Machines is very likely – regardless of the state of the overall stock market. (Regarding macro projections, I’ve been a long-term fan of Albert Edwards insightful analysis and would urge every investor to follow him. He has long been castigated as a ‘bear’ but in my opinion he is a realist, and investors are now coming to realise that.)

Seeing Machines is the global leader in one of the hottest areas in a very hot tech sector. It’s partnering with tech behemoths who are led by very smart people. They won’t pass up the opportunity to acquire Seeing Machines. Though they could well face competition from private equity players with a trillion dollars of dry powder.

Peel Hunt note on M&A activity

This very week Peel Hunt issued a note entitled, ‘Accelerating UK bid activity’, written by Charles Hall, Head of Research and Clyde Lewis, Deputy Head of Research. Although it focuses on companies in the FTSE 250, I think there is a read-across for quality companies on AIM. 

Here’s an extract from the note:

“A classic indicator of a disconnect between short-term concerns and longer-term opportunity is when non-equity investors start to buy the assets. This is clearly happening, with 10 bids for FTSE 250 companies progressing currently. This is unsurprising given the de-rating of the FTSE 250, with the overall index-18% YTD and 80% of the members down on the year. This has driven heightened interest from overseas and private buyers. There have been 14 proposed and announced bids in the past six weeks, adding up to £21bn of equity value.”

Discussing the themes for investors to consider, the note goes on to state: 

“The pace has clearly accelerated after a slow start. There is a clear focus on hard assets, with most of the businesses being acquired having strong market positions with clear and lasting cash flow credentials. The mix of financial and corporate buyers reflects the strength of balance sheets, access to funding, and the ability to look through a tough economic environment. Weaker sterling should also increase the appetite from overseas.” 

I’d urge investors to do their own research as I’m not Nostradamus, just a journalist. That said, it’s undeniable that investors are still ignoring the oh-so-clear value to be had in Seeing Machines.

Cheer up

With all the terrible things going on in the world I’ve found that watching interviews with the legendary journalist and political analyst Anthony Howard has greatly cheered me up this week.

If that doesn’t float your boat, why not watch Queen performing We are the Champions at Live Aid in 1985. It’s a song that will make a fitting anthem for investors in this company when it is bought for billions. I dedicate it to all investors in Seeing Machines and its hardworking and talented staff.

The writer holds stock in Seeing Machines.

Churchill’s crimes revealed by Tariq Ali

Tariq Ali’s new biography ‘Churchill: His Times, His Crimes’ is a must-read.

In this 400-page biography of Winston Churchill, Tariq Ali masterfully unmasks the man behind the myth. Using a wide-ranging history of his times to provide context Ali analyses Churchill’s pivotal role in many crimes against both working class people at home and those overseas who he viewed as a potential threat to the British Empire.

It’s a timely book, given the willingness of both the Tories and Labour to embark on post-imperial adventures while invoking the myth of Churchill as ideological cover for such moves. 

In this iconoclastic work the renowned political activist and writer makes a significant challenge to the Churchill Cult, an ideology that has led England further down a political and cultural cul-de-sac since his death.

In doing so, Tariq Ali displays his well-deserved reputation for sharp analysis and courage, uttering truths that few others dare to. Let’s not forget he was one of the few to explain the political origins of the anti-semitism smear campaign against Jeremy Corbyn and to loudly criticise the willingness of most Labour leaders to collaborate in US/NATO inspired wars, in Iraq, Afghanistan and most recently Ukraine. 

Many will now fume at the exposure of Churchill as an inveterate bungler, racist and war criminal, who advocated the use of chemical weapons against the Kurds in the 1920s, allowed 5 million Indians to die of starvation during WW2, and approved the use of nuclear weapons against Japan.

Establishment historians will doubtless queue up to criticise Tariq Ali and the mainstream media will vilify him but Ali clearly realises that Britain needs to confront its past and understand the ugly legacy of imperialism. An appreciation of Churchill’s mistakes and motivation is obviously key to that. Thus, Ali carefully explains the crimes he committed in Ireland, the Middle East, Russia, Greece and India, his actions invariably motivated by a desire to maintain the British Empire.

Ali also convincingly debunks the myth of Churchill as a dedicated anti-Nazi since, until the moment when he realised the British Empire was threatened, he was an admirer of Mussolini and Hitler. Indeed, in unleashing a civil war in Greece (December 1944) Churchill and the British army destroyed the most successful ant-Nazi resistance in Europe. As Ali convincingly argues: “the British Army and its Greek auxiliaries were guilty of serious war crimes, some bordering on genocide.”

As a source from which to establish a more objective view of world history from Churchill’s time to our own Tariq Ali’s book deserves to be compulsory reading in every school across the country. Yet, it is much more than a dry, historical tome as Ali’s practical, ceaseless political energy enthuses the reader. The result is a guide to better understand modern history and Churchill’s role in it and to challenge the dominant ideology that has made a racist imperialist a cult figure.

Surprisingly, despite the terrible crimes it catalogues this book isn’t a depressing read. For that we must thank Ali’s writing, which is infused with his characteristically dry wit and sense of historical irony. His deep cultural knowledge also enhances the overall flavour of the book. For instance, how many biographies of Churchill would footnote novels by Naguib Mahfouz and André Malraux? Clearly, with Tariq Ali the book is the man.

Ali has performed a valuable service in attacking the myth of Churchill, far more effectively even than those who daubed paint on his statue. The hope is that it will reignite an informed debate as to Britain’s present role as a key participant in the United States’ imperial project.

He certainly succeeds in tossing the Churchill Cult into the dustbin of history and, with characteristic disdain, firmly places the lid on the racist, Empire-lover. Nevertheless, it still remains our duty to ensure that the wretched dustbin, full of racism and bloody repression, is finally taken away and emptied.

This article was sent to The Morningstar newspaper. Read the published review of Tariq Ali’s book on Churchill: