Peel Hunt analyst Oliver Tipping has downgraded Seeing Machines from a ‘Buy’ to a ‘Hold’, cutting the broker’s target price from 6p to 3p.

In the note, published on Tuesday, Tipping explained the reason for this change in valuation: “Ultimately, the automotive business has real value. It is the clear market leader, delivers significant volumes at extremely high gross margins, and should drive positive cash generation this year.

“However, the current share price is dominated by uncertainty over the refinancing of the c.$60m Magna facility. It is possible the new facility could contain a convertible option, but we do not know the potential price other than it will not be the 11p of the original facility. Until we have greater clarity, we downgrade from Buy to Hold and reduce our TP from 6p to 3p.”

Nevertheless, in an introduction to the note Tipping appeared to hold the door open to a swift re-rate, stating: “…we downgrade from Buy to Hold until the refinancing is resolved, conscious a positive result could see the shares rally.”

Indeed, Tipping confirmed: “We still expect the firm to generate FCF of $23m/$29m in FY 27/28E, providing ample capacity to significantly reduce any debt balance, even at a high interest rate. We believe management should focus on paying down debt with this cash flow before looking to renegotiate any debt agreement in 12 months when the business is in a stronger position.”

The writer holds stock in Seeing Machines.