An impressive full-year trading update this week made it crystal clear that Seeing Machines is set for significant growth in margins, revenues and a speedy path to profitability, as license revenues for autos on the road ramp up, with fleet/aftermarket set to grow very quickly.
Surprisingly, the trading announcement was brought forward by a couple of weeks. The reason is likely to be revealed soon as the company subsequently announced that there is to be a presentation for investors in London on September 13.
Aviation license deal
The news I’m really hoping for before its investor meeting on the morning of the September 13 is that it has signed a license deal with a Tier 1 aviation supplier with an upfront payment that will bring forward profitability.
CEO Paul McGlone turned very bullish in a recent promotional video interview with Proactive Investors in which he stated that in aviation he is committed to licensing out SEE’s technology to one or more partners: “We are going to be working through significant Tier 1 avionics partners to deliver our product to market. We have created the demand there so it’s a very strong proposition for the partners that we are talking to,” he confirms.
It surely cannot be a coincidence that after downplaying the significance of aviation in a prior interview McGlone has now become much more bullish. Certainly, my sources are confident of success and so I’m optimistic that an announcement on a licensing deal is ‘IMMINENT’.
As to who it is, the obvious candidate is Collins Aerospace (part of Raytheon Technologies) with whom it is already working closely.
Note the wide range of areas within aviation that are being targeted: “The Agreement positions Seeing Machines to work closely with Collins to jointly market co-developed solutions across the Aviation industry to deliver its eye-tracking technology solutions to Commercial Air Transport, Business, Military, Rotary Wing, General Aviation and Flight Training customers to address improved safety and efficiencies for both pilot training and flight operations.”
Share price to re-rate
I think that such news, when confirmed, could be the catalyst for a huge re-rating in its share price, given the fact that:
- It is likely to involve an upfront payment that could be significantly larger than the one it received (US$17.5m over 4 years) back in September 2015, when it signed a licensing deal with Caterpillar.
- The ongoing license revenues, even if low double digits would likely run into tens of millions of Australian dollars each year.
- It will absolutely confirm that See’s pilot monitoring provides crucial safety benefits in yet another transport sector, thereby giving chip manufacturers another reason to acquire it in order to diversify their revenue streams. It’s a model that can be replicated in other transport sectors; most notably marine.
In addition, Berenberg in a note this month mentioned that SEE should be a beneficiary of a strong US dollar as a quarter of its earnings are in that currency. In the note it estimates that Seeing Machines is “expected to experience a c8-14% tailwind to sales in the current fiscal year, followed by a 1-4% benefit in FY23”. With US earnings accelerating along with the dollar strength, I’d hope this will be an underestimate.
More contract wins
As if this wasn’t reason enough to be bullish about a share price rise, we’ve yet to hear of significant wins in auto and aftermarket/fleet that my sources have confirmed have been decided in SEE’s favour. I can only assume there is some slight bureaucratic delay in signing off the contracts.
By the end of this financial year, I confidently expect an official A$1bn order book for SEE – which will eventually turn out to be nearer two or three times that.
To all sceptics, I say: pick up your mobile phone. Can you hear that noise? That’s not static, someone in Canberra is calling out: ‘Show me the money!”
The writer holds stock in Seeing Machines.