Monthly Archives: July 2024

Seeing Machines Gen 3 Guardian fitted into first commercial vehicle manufacturer

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Seeing Machines has confirmed that its recently launched Guardian Gen 3 AI-powered Driver Monitoring System (DMS) has been successfully fitted into Wrightbus and achieved ‘homologation’, the formal process of being approved and certified for use.

In a note issued today by house broker Stifel, its analyst Peter McNally explained that the actual contract with the Northern Irish bus manufacturer is likely to be worth ÂŁ0.8m-1.5m per year to Seeing Machines at full production.

While that’s not huge, the real significance of this news is that it paves the way for further approvals from bus and truck manufacturers. For example, Seeing Machines revealed that 3 other OEMs are currently going through the approval process, which McNally noted: “indicates that the company has won another customer since the last update”.

OEMs Future Proofing

McNally also reiterated a point that has been ignored/misunderstood by many investors; some manufacturers will increasingly seek to future-proof their commercial vehicles by installing advanced DMS, to be ready for the introduction of more stringent regulations in Europe that come into effect in 2026. 

Here’s how he explained it in his note: 

“On 7 July, two key regulatory changes to Europe’s GSR came into effect:
(1) Driver Drowsiness and Attention Warning (DDAW): DDAW, which requires driver monitoring systems for signs of drowsiness, is as of 7 July mandatory for all new road vehicles sold. While the regulation does not appear to require advanced DMS, allowing a wider scope of solutions, we would expect the change to increase demand for DMS, with Seeing Machines’ products a market- leading option for OEMs now necessitated to at least provide monitoring for drowsiness. However, this can also be provided by steering wheel torsion.

(2) Advanced Driver Distraction Warning (ADDW): A more stringent standard requiring direct or camera-based DMS to detect driver distraction, ADDW points more directly towards Seeing Machines’ offerings. As of 7 July, this is mandatory for all new ‘types’ of registered vehicles, but we shall have to wait two years before it is mandatory for all new vehicles sold. However, for customers installing DMS in the short term to meet the DDAW regulation, there is now an incentive to future- proof vehicles for when ADDW fully comes into effect in 2026, with the Guardian 3 a market-leading option.”

It’s therefore a no brainer that the more proactive, safety-conscious, OEMs are going to accelerate the process of installing advanced, camera-based DMS. With its technological lead further buttressed by leadership in gaining regulatory approval and certification for use by commercial vehicle manufacturers Seeing Machines should take a very healthy chunk of the market in Europe.

Massive market in Europe

The scale of this regulation-driven opportunity is huge as McNally conveyed with some stats: “The European Automobile Manufacturers’ Association (ACEA), which ‘unites’ Europe’s 15 major car, truck, van and bus makers, stated that European bus production rose 19% to 33k vehicles in 2023. In addition, commercial truck production rose 16% to 347k. For comparison, Seeing Machines reported a total of 14.8k hardware units sold in FY23 which produced $14.5m in revenue from hardware and installations.”

McNally reiterated his investment case for Seeing Machines with ‘BUY’ recommendation and a 13p price target. “We continue to think that Seeing Machines is leading the DMS market. At current levels, the shares trade at 4.0x FY24E EV/sales or 3.3x FY25E, which we think is attractive for a market leader in a large industry with a three-year forecast revenue CAGR of 27% or 42% for gross profit through FY26E.”

Personally, I’m expecting upgrades this financial year as Seeing Machines market leadership in Aftermarket and Auto (never mind Aviation) becomes glaringly obvious and profitability is achieved.

The writer holds stock in Seeing Machines

Xeros Technology set to rerate on positive news flow

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I’ve recently taken a position in Xeros Technology, which is delivering on its longstanding promise to place environmentally-friendly tech into washing machines.

It has already made substantial progress in it 3 target sectors:

  • Filtration – Its filter technology prevents plastic microfibres from clothes being expelled from washing machines goes into waste water. 
  • Finish –  XFN is an innovative technology (using its XOrb balls and an XDrum) for wet processing during garment manufacture. It halves the amount of water needed, and removes pumice in denim finishing, and can significantly reduce the chemistry, energy and time needed in the garment finishing stage.
  • Care – its XOrb and XDrum tech not only reduces the amount of water and energy used in washing machines but apparently can help extend the life of garments. 

Moreover, it appears set to deliver much more before the end of this calendar year. As Neil Austin, said in the RNS announcing its 2023 full year results on 28 May, 2024:

“Our agreements with licensees moved closer to commercial launch, as we embarked on the crucial technology transfer process with both IFB and Yilmak Makina. We completed the technology transfer for IFB domestic machines (Goa) in December 2023, and Yilmak Makina’s commercial denim processing machines (Turkey) in Q1 of the new financial year. All these machines have now moved to the manufacture and marketing stage, ahead of scale launch later this year.

“In addition, the work undertaken to increase the Group’s commercial focus has resulted in a stronger than expected pipeline of potential new agreements. We are now in discussion with 10 major organisations with interest across all the Group’s technologies.”

I’ve hesitated for a long time before investing, waiting for the fundraise in April that raised ÂŁ4.7m and brought in Amati and Milton as investors. 

Significant shareholders

Here’s the list of substantial shareholders lifted from its website:

Significant shareholders in Xeros Technology

Amati AIM VCT

In its April factsheet for the Amati Aim VCT, co-fund manager David Stevenson explained why he and CEO & Fund Manager Paul Jourdan had taken a new position in this business.

“Xeros is the developer of a patented polymer bead technology, which reduces laundry requirements for water, power and detergent. It also results in less garment damage through time. The company has spent a lot of time and money getting to this point, but now has growth potential from the incorporation of its technology into domestic and commercial washing machines, and the pre-wash treatment of garments by denim manufacturers. Xeros also has a novel filter device for removing micro-plastics from washing machine waste. The long lead time to commercialisation of these technologies has dragged the valuation of the company down to very low levels, making this an attractive entry point for new investors.”

Given it is so tightly held it will only take a little bit of buying from this level to see it rise substantially and I expect news flow over the next few months to deliver that momentum.

I see certain similarities between it and Seeing Machines in terms of its business model of licensing its tech out to major manufacturers, so I’m not surprised to see Lombard Odier holding a chunky 10.8% of its shares.

House broker Cavendish has a price target of 18p on the stock. Xeros is forecast to make an adjusted LBITDA loss for the year ending 31 December 2024 of ÂŁ2.6m on revenues of ÂŁ2.7m, before hitting cash flow breakeven next year, with a forecast adjusted EBITDA of ÂŁ1.3m on revenues of ÂŁ7.6m for the full year 2025.

In a note published on 28 May 2024, explaining its results for FY 2023, analyst Michael Clifton wrote: “Cash was bolstered post-period end by £1.7m from the exercise of warrants and £4.7m gross from the fundraise in April 2024. Following the fundraise, Xeros now has sufficient liquidity to operate to the end of H2 FY2024E (with some added buffer) by which point we continue to expect the business will have reached adj. EBITDA and cash flow breakeven.

He added: “We reiterate our 18p/share target price which reflects the market-leading quality of Xeros’s solutions; its high gross margins; the underlying environmental, commercial, and legislative drivers; and the size of the addressable markets.”

It’s certainly a high risk stock and ‘not one for widows and orphans’, as the saying goes. However, for those willing to do some research it seems to hold out prospects of near term profitability with a sensible business model. 

The writer holds stock in Xerox Technology and Seeing Machines.

Peel Hunt confirms Seeing Machines could capture 70 per cent auto market share

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Peel Hunt confirms Seeing Machines could capture 70 per cent of the global auto market and proffers a 16p bull case target price, while reiterating its current 9p price target.

In an interesting note issued today, Peel Hunt analysts have clarified their thoughts regarding Seeing Machines, stating it is the leading company in the Driver Monitoring (DMS) space with the opportunity to capture around 70 per cent of the 90-100m cars sold globally each year.

In the note, its team of analysts Oliver Tipping, Damindu Jayaweera and James Lockyer, stated: “We  believe Seeing  Machines has  a medium-term opportunity  to  sell  Driver  Monitoring  Systems  (DMS) to  c.70%  of  the  90-100m  cars sold p.a.,  equating to a c.US$650m/year market.”

They added: “By dissecting competitors’  KPIs,  we  conclude  that  Seeing  Machines already has a leading position ahead of the market inflection.”

Of course it’s well-known that the  EU General  Safety  Regulation  (GSR),  provides  a  layer  of  certainty  as  it  mandates  DMS in  all  cars  by  July 2026.

Moreover, from January 2026 the Euro NCAP 2026 protocols will require advanced, camera-based DMS if passenger cars are to achieve a 5 star rating. Given production lead times, I personally believe that means leading OEMs need to lock in this technology now for delivery by then.

Bull/Bear case

Peel Hunt explained its bull/bear case scenarios for Seeing Machines. Its bull case target price is 16p. Its bear case target price is 3.5p. 

“Our bull case assumes Seeing Machines can win in the Chinese market. This sees cars on the road ramp to c.25m units. This is still lower than the 30m+ rear view mirrors Gentex ships p.a., so it is not an unreasonable number for a key player in the Automotive market.

Our bear case assumes that Seeing Machines only ever wins a 15% of its Total Addressable Market, equating to 10m cars on the road p.a. and that the ramp happens slower  in  the  short  term.  We  forecast  a  46%  growth  rate  for  FY26E,  vs  100%  growth  in  our  base  case. A  delay  in  adoption,  and  increased  competition,  especially  in  the  rear-view  mirror  market,  that  leads  to  a  lower market share are the two key risks.”

It should be borne in mind that even this valuation doesn’t fully reflect the huge growth that Gen 3 Guardian is likely to deliver in the current financial year. In my opinion, with contracts ranging from the tens of thousands to hundreds of thousands of units likely to be won by Seeing Machines there is ample scope for upgrades to every broker’s target price. 

In addition, Aviation will provide further upside when Collins delivers its finished its AI-powered eye-tracking product for use in aeroplanes, in collaboration with Seeing Machines.

Of course, do you own research and don’t rely on the views of any single source before investing.

The writer holds stock in Seeing Machines

Seeing Machines’ canny acquisition outweighed by Peel Hunt’s reduced price target

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Investors were left scratching their heads as a bargain acquisition by Seeing Machines that enhances its automotive DMS/OMS offering, cements its presence in Europe and secures it more automotive contracts, was outweighed by news that Peel Hunt has reduced its price target from 12p to 9p.

The acquisition was of Asaphus Vision, a Berlin-based company that was owned by Valeo and which has strong IP in AI and machine learning relating to facial recognition and DMS. According to the RNS issued today, it supports a strategic collaboration with Valeo to grow market share in automotive. Moreover, the  acquisition for US$6m (only $2m in the first two years) is “expected to be cash neutral on an operating basis.”

Peel Hunt had previously stated (in a note dated 26th June) that it would reduce its forecasts “to reflect the timeline for the expansion of its driver monitoring systems (DMS) shifting to the right and slower-than expected roll-out of the Gen 3 aftermarket product.”

It that note it stated:“Greater uptake in ‘basic’ DMS has diluted royalty per car, whilst Gen 3 delays mean Aftermarket sales are low-margin end-of -life Gen 2.”

Today, Peel Hunt analyst Oliver Tipping confirmed that view: “Greater demand for low-priced ‘basic’ DMS and the delay in getting its Gen 3 aftermarket product ready to ship, mean FY24 margins are lower than expected. Underlying progress remains solid, today’s acquisition further differentiates its expertise, and the EU regulations mandating more advanced DMS (at a higher ASP) in 2026 keep us bullish on the medium term prospects. We revise our numbers based on this shift to the right and lower our 12-month TP from 12p to 9p, but retain our Buy rating.”

Its forecast revenue figures for the financial year ending 30 June 2025 has been reduced to $76.8m from $91m, with its pre-tax loss forecast to rise to $11.8m from $1.2m, with cash EBITDA falling to $1m from $11.3m. 

Bargain acquisition

Far from being dismayed at these developments, I think the market is being far too pessimistic. Seeing Machines has got a bargain acquisition in Asaphus, which only a year ago was valued at $12.5m by owner Valeo, for whom it was its internal DMS/OMS product development division.  Moreover, it’s tech reached commercial deployment in 3 automotive programmes, including one in China.

According to Peter McNally at house broker Stifel: “While Seeing Machines has worked with Valeo in the past, its work has had to be carefully delineated to account for Aphasus. With the company taking ownership of this asset, it appears that Valeo has now aligned itself with Seeing Machines technology and is evidenced by a statement from a representative of Valeo in today’s release which states, ‘We are delighted with this collaboration. Combining their teams with Seeing Machines, we will benefit from the best-in-class perception software to integrate into our hardware and software architecture for driver and occupant monitoring systems. Together, we will be able to provide more competitive solutions.’

McNally believes this tie up with another Tier 1 automotive supplier, in addition to Magna, is “a sign that the market is increasingly moving toward Seeing Machines’ solution.”

Deepening partnerships

So what are the implications for the future? Well, this is McNally’s take. “We note that less than a year ago, Valeo announced its Smart Safety 360 product that was suggested within the industry to use Mobileye (MYLY.O, not covered) advanced driver assistance (ADAS), as well as Seeing Machines DMS in the same product. We also note that Seeing Machines signed a non- exclusive distribution agreement with Mobileye in February 2023. We wonder what the combination of partnerships including these companies could be in the future. It appears that Seeing Machines has made partnerships/agreements with these companies that could be deepening the involvement amongst them.”

I believe this deal makes Seeing Machines an even more attractive target for an acquisition in the near future as its global dominance grows and high quality DMS/OMS becomes the only game in town.

The writer holds stock in Seeing Machines.

The falsification of history

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The mainstream media is trying to convince us that Labour won a great victory in the 2024 General Election. However, it achieved a landslide because of our archaic and unfair electoral system of first past the post.

Here are some facts that make this pretty obvious.

  1. The turnout for this election was apparently the second lowest since 1885, at 60%.
  2. Labour only won 34% of the votes of the 60% who bothered to vote.
  3. In other words, we now have 412 Labour MPs, elected by only 20.4% of voters.
  4. Lastly, don’t forget that in 2019 Corbyn secured 10,269,051 votes against Starmer’s 9,686,329!

Okay, Labour will say, “So what? We now control the House of Commons”. 

The point is that Keir Starmer has no genuine mandate from the people of the UK. He has taken money from various lobbyists, private health care providers, supporters of Apartheid Israel and has vowed to stick to Tory fiscal rules.

When he embarks on further NHS privatisation, continues to support war against Russia, Israeli Apartheid and genocide, fails to support NHS doctors and striking workers and those opposed to economic austerity that lack of support will matter. He also has no real desire to tackle climate change and won’t manage to revive the UK economy.

When the shit hits the fan over the next few years, the choice will likely boil down to Farage or a genuine left/green opposition. At the moment Farage seems well placed to benefit from Labour failure but the left/greens can build from here. 

Corbyn’s legacy remains, as does he in the House of Commons. Resistance isn’t futile. The Uniparty may have won this electoral battle but we, the people, can resist it effectively if we organise.