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Stifel flash note: SEYE KO’d by Seeing Machines?

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In a flash note published yesterday, Stifel confirmed that Smart Eye’s Q3 results clearly show it is taking at beating at the hands of the global leader Seeing Machines.

Stifel analyst Peter McNally confirmed what well researched investors already know; that the auto industry is in a tough place, particularly for Smart Eye. Regarding Smart Eye, he commented: “Automotive revenue shows a slight dip (-1.5% q/q) to SEK 32.4m and is therefore similar to last quarter, which was flattish also. Part of the reason for being flattish is a transition away from services (NRE) to licences, which grew 100% y/y to an undisclosed amount.”

For those who still think Smart Eye is a contender for the automotive crown, McNally’s killer punch is that: “On a like-for-like basis, Seeing Machines Automotive revenue (excluding Aerospace) in FY24 was well over $60m versus Smart Eye’s $11.4m (Q323- Q224), so it still looks like Seeing Machines is well ahead.”

According to McNally, two more take-aways from the results were, firstly: “Commentary on growth in Automotive licences is positive saying the growth rate should increase in Q4 and ‘even higher growth in 2025.’ Clearly this suggests that they see adoption is increasing, which is good news for the industry, but we still think they are playing catch up at this stage as their revenues are significantly lower.”

Secondly, “Smart Eye is also suggesting that volumes will pick up in Q4 in Aftermarket, which somewhat agrees with Seeing Machines’ expectation of a ramp in volumes in its fiscal H225 (Jan-Jun 2025).”

Having listened to the Smart Eye presentation, I found the reluctance of the company to state the number of cars on the road with its technology a telling indication that it has been bested in autos by Seeing Machines. Smart Eye once used to boast of having 1m cars on the road but, as Seeing Machines approaches 3m by the end of this calendar year, the Swedish company has yet to announce hitting 2m, preferring to use the opaque terms ‘design wins’ and ‘models’.

Of course, do your own research.

The writer holds stock in Seeing Machines.

Euro NCAP pushes for quality DMS, as provided by Seeing Machines

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Following the publication of the 2026 Euro NCAP safety protocols, Seeing Machines is on the cusp of a significant re-rate as OEMs and Tier 1s race to meet higher performance requirements for driver/occupant monitoring.

The two documents can be viewed here, courtesy of Colin Barnden, Principal Analyst at Semicast Research: 

The significance of these documents appear to have passed many investors by. However, no less a figure than Richard Schram, Technical Director at Euro NCAP, has confirmed to me that from January 1st, 2026 a new passenger car will not achieve a 5 star Euro NCAP safety rating in Europe unless it has a driver/occupant monitoring system that meets the criteria specified in these 2026 protocols.

The implications of this news are huge for any OEM wishing to sell new passenger cars models in Europe. This is because, even though driver monitoring is mandatory in Europe from July 2026, Euro NCAP is effectively “pushing for higher performance than the regulation does”, according to Schram.

This is great news for Seeing Machines as, being the most technically proficient provider of DMS/OMS with a fast to implement rearview mirror system, it offers the most realistic solution for many OEMs in that timeframe whose premium models will certainly require 5 star safety. [Elon Musk are you listening?]

I’m therefore anticipating a raft of extensions to existing contracts as well as new contracts to secure its services via Magna, but also via its other partners over the next 6 months.

I think that in the short term there will be such demand for its technology that its average selling price (ASP) will not drop significantly even as volumes expand. Moreover, that ASP is, I believe, already at a significant premium to its competitors. 

The upshot is that within the next 6 months, as SEE speeds towards 4m cars on the road with its technology, SEYE will be left in the dust, alongside Tobii and Cipia – which must be feeling the pain from the economic collapse of Israel.

Seeing Machines itself has previously stated that it expects to take around 40 per cent of the global passenger car market for DMS by volume, 50 per cent by value. I’ve long held the view that 75 per cent by value is possible and I think this news from Euro NCAP confirms that there was a sound reason for my holding onto this stock, despite experiencing a roller-coaster ride.

As OEMs, Tier 1s and fund managers realise the implications of this news I expect increased buying of SEE stock as it brushes off misplaced investor concerns. This should push the price up significantly. 

Call me paranoid but over the next 6-8 months I believe private investors should beware market makers shaking the tree in order to acquire their shares cheaply for institutional buyers.

Of course, do your own research as this is only my opinion. Maybe my prediction of a 75 per cent market share of the global DMS market 8 years ago was a fluke.

The writer holds stock in Seeing Machines.

Seeing Machines drives towards cashflow breakeven 

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Despite well publicised woes in the auto industry, Seeing Machines penetration of the auto market continues apace with the latest quarterly KPIs showing that it is on track to pass 3m cars on the road for this calendar year, as predicted by Safestocks back in May. 

The Q1 FY2025 auto figures showed quarterly production of 405,669 units, taking the number of cars on the road with Seeing Machines’ technology to 2,617,091.

That represents 100 per cent growth year-on-year, which sets it apart from all its rivals – none of which has even hit 2m cars on the road.

In a note published today by house analyst Stifel, analyst Peter McNally wrote: “Reassuringly, the company’s 8th Automotive production programme has commenced, which adds another since the 7th was announced at the Q424 KPIs in August (6th at the end of FY23). Although Automotive industry volumes are light, more of the company’s OEM customers are launching, meaning adoption/ royalties should continue to rise further. We think two more are likely in 2025 and additional programmes are launching within individual OEMs providing a compound effect.”

He added: “We think it can probably add another 1.9m cars on the road in FY25E (vs 1.1m in FY24) with only mild decreases in average selling price.”

In a separate interview with Proactive Investors today, Seeing Machines CEO Paul McGlone confirmed that 2 more auto programmes are due to be launched this financial year.

Guardian

McGlone also explained that Guardian Gen 3 sales would be ramping up in the second half. Given that average recurring revenue for Aftermaket driver monitoring (excluding any effect from Caterpillar) rose 13 per cent over Q1 2024, the improved gross margin from Gen 3 hardware sales should underpin an even better performance over the remainder of this financial year.

Indeed, in that same interview CFO Martin Ive again confirmed that the company is determined to hit cashflow breakeven on a monthly basis by the end of this financial year. 

Undervalued

Certainly, the company’s share price has recently been hit by concerns over cash, however McNally’s view on this is: “
we believe 3rd party development costs will reduce in addition to headcount, and cash should benefit from growth in higher margin OEM Royalties (c.100% GM) and a Guardian Gen 3 ramp in H225. We think the company has a portfolio of non-dilutive additional cash options if needed, as history suggests.”

McNally adds: “Following the recent share price decline, the shares trade at 3.1x EV/Sales, which we think is attractive for a market leader in a large industry with a 3-year forecast revenue CAGR of 23% or 42% for gross profit through FY27E. Buy.” 

Personally, I’m expecting further auto OEMs wins, license deals and a ramp in Gen 3 Guardian sales in the second half to raise the share price significantly as this financial year progresses. Furthermore, many funds are watching this stock from the sidelines and profitability is the key catalyst that I believe will see them buy in.

In my experience, nervous private investors tend to move out of a stock just when they should be buying more or at the very least holding. Mr Market hasn’t done years of research in this stock and is driven by fear and greed. Of course, do your own research.

The writer holds stock in Seeing Machines

Auto industry woes affect Seeing Machines

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While Seeing Machines’ FY24 results illustrated a year of significant progress, auto industry headwinds and a slower than expected ramp in Guardian Gen 3 sales have led to Stifel reducing its revenue estimates for FY25-26. This in turn has led to it reducing its DCF-based target price to 11.4p from 13p.

It’s certainly disappointing news for shareholders but Peter McNally, analyst at Stifel, commented in a detailed note issued on October 31st: “Despite delays we maintain our positive stance on the shares moderating our target price to 11.4p (13.0p) and see the company extending its leadership with proven implementation and deployment into an increasingly regulated market.”

Revenues for 2025 are now predicted to be US$73.1m with a pre-tax loss of $13.3m, while in 2026 revenues of $97.5m produced a pre-tax profit of $5m.

Material uncertainty

In the full Annual Report (on page 46), the auditor PWC also made a comment about ‘material uncertainty’, reflecting the cash outflow of $11.9m in the FY24 results. Personally, I believe they are only fulfilling their obligations to warn investors about potential risks (while also covering themselves), yet it is unsettling for green investors unused to the conservative ways of auditors.

Stifel’s McNally certainly didn’t appear unduly concerned, stating: “We note the auditor’s “material uncertainty” comment but see a path to breakeven given strong (although reduced) operational drivers and cash costs containment”.

He went on to explain his estimate changes and assumptions in detail: “We reduce FY25/26E revenue by 11%/17% assuming a slightly higher GM% of 64% (62%), driven by a slightly higher software mix resulting in a cash EBITDA loss of $14.9m ($10.8m) for FY25E but profit of $8.6m ($19.5m) in FY26E. This is based on stable cash opex of $65m, resulting in $9.8m cash at FY25E year-end and cash generation thereafter as royalties continue to ramp and Guardian Gen 3 volumes increase.”

In his presentation today on Investor Meet, Paul McGlone reiterated that the company still expects to hit breakeven on a monthly basis in Q4 of this financial year.

He went to explain that if additional working capital is required due to the lumpy nature of automotive revenues: “We have a reasonably simple solution in the form of receivables funding and that process is underway. We expect it to deliver additional working capital in the range of $5-10m.”

Furthermore, he added: “To the extent that we need additional cash, we have a whole range of opportunities before us, some of which are well progressed and are consistent with the types of programmes or results that we’ve delivered in the last 2-3 years.”

I assume here that he is referring to license deals which, as Stifel points out have had a dramatic effect on profitability and cash given its similar 100% gross margin nature to royalties. McNally teased in his note: “Licensing is very difficult to predict but the company has benefitted from licensing deals over the past few years from Magna for $5.4m in October 2022, Collins Aerospace for $10.0m in May 2023, and most recently Caterpillar for $16.5m in June 2024.”

I’m therefore fairly confident Paul McGlone and his team will pull another rabbit out of the bag this year. Happily, it seems smarter people that me are thinking the same.

Speaking directly about the cash concerns McNally wrote: “With $23.4m of cash on the balance sheet we feel that the company has sufficient cash for the year with the goal of reaching run-rate cash flow break even by the end of FY25E (June). The company also has a history of sourcing strategic funding and software license agreements that have benefited cash. We believe these options still exist and can provide additional cash if required.”

Peel Hunt

In a short note issued today Peel Hunt reiterated its ‘BUY’ rating but reduced its target price to 7p from 9p. Analyst Oliver Tipping stated:

“Management has re-affirmed its commitment to reach a cash break-even run rate in FY25. However, we believe this could be challenging. 

“Ultimately,  OEMs  across  the  industry  have  been  struggling  and  they dictate the speed of production. We fear timelines could shift to the right. 

“Seeing Machines’ ability to reach its break-even  run  rate  goal  is  likely  to hinge on its ability to control costs. Competitors, like Tobii, have already begun severe  spending  cuts  and we  believe  Seeing  Machines  will  require similar measures given  its  current  cash  burn  rate of $2m a month. To account for wider industry weakness, we reduce our TP from 9p to 7p.”

Reasons to be cheerful

While the share price tanked on Thursday, as nervous private investors do what they usually do when real life intervenes; panic and sell low, there are reasons to be cheerful.

In the Investor Meet presentation today Seeing Machines did confirm that for this financial year it expects: 

  1. 1.9 – 2.1 million annual production units for Automotive, contributing to high-margin royalty revenue. 
  2. A 20% increase in connected Guardian units generating monthly services revenue. 
  3. 13,000 – 15,000 Guardian Gen 3 units to be sold, predominantly in Q2 at a much higher margin (50%) than previously with Gen 2 units (10%). 
  4. Aviation to achieve Blue Label (functioning prototype) product delivery, adaptable for certain fields of use (simulator, air traffic control). 
  5. Cash flow break-even run rate target at end of FY2025.

In addition, during the Investor Meet presentation CEO Paul McGlone revealed that there has been a resurgence in the inflow of RFIs and RFQs for the auto industry. “We are currently processing RFQs for OEMS based in Japan, Korea, Europe, China and North America. The vehicles associated with those RFQs are largely for Europe, Japan and North America and would have start of production timing between 2027 and 2029. And we expect the sourcing of these programmes to begin in 2025 calendar year.”

Thus, I think Peel Hunt’s fears of auto timelines shifting to the right are unfounded. Indeed, Seeing Machines has already suffered from that and the market is now hot for DMS/OMS once more.

Amazing news?

Regarding Gen 3 sales, I’m also hearing a whisper that Seeing Machines has begun trials with a global US online retailer, which is A household name. If they are successful and a deal is announced a few months from now I’m pretty confident the share price will soar on that news alone. Can you guess the name?

I’ve been in this stock a long time, too long in truth. However, I’ve no intention of selling out when the company is so close to achieving breakeven. That’s because I believe it will trigger a bidding war. Do your own research of course.

The writer holds stock in Seeing Machines.

P.S. If anyone does make any money from this information do please consider making a small donation to a charity for the people in Gaza. As we worry about money they are being murdered en masse and ethnically cleansed, which according to international law constitutes genocide. Thanks.

Significant Xeros license deal but Indian delay impacts short term revenues

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Investors in Xeros saw it fall approximately 40% last week, despite news that it has won its most significant licence deal to date with the huge Chinese company Donlim. 

The main reason for the fall was a separate Trading Update warning of increased losses and reduced revenues for the current financial year and FY2025, putting back breakeven on a monthly basis to late 2025. House broker Cavendish stated: “Net cash was £4.0m on 30 August, with FY24 cash expected at £2.9m. The Board expects to have sufficient cash resource to see the company through until it achieves net monthly cash breakeven during the latter part of FY25. On lower near-term forecasts, we reduce our Target Price from 18p to 16p, although the longer- term market opportunity and the environmental benefits of its technology remain significant.”

The main reason behind this disappointing update was short term delays to the launch of its Indian partner IFB’s 9kg washing machine. Still, having spoken at length with CEO Neil Austin, I’m convinced that the share price fall to 0.7p is an over-reaction. My reasoning is fairly straightforward and outlined below: 

1) The quality of the licence deal with Donlim, opens up a huge global market in filtration for Xeros, which includes China. Donlim (owner of the Murphy Richards brand) is listed on the Shanghai Stock Exchange and trades in 120 countries with annual revenues of over ÂŁ1.5bn. It will be manufacturing its external washing machine filter (XF3), as well as the internal one (XF1). My understanding is that for each internal device sold Xeros will receive between ÂŁ2-3 licence fee and slightly more for the external device. Mass production of the XF3 external filter is set to begin in Q2 FY2025.

In addition the RNS states that ‘the strategic partnership further enables Donlim and Xeros to collaborate on the future development of innovative filtration and water saving products. For instance, given the fact that microplastic pollution is ubiquitous in the very air we breathe and water we drink everything from hoovers/fans to coffee makers could potentially use Xeros’ filtration expertise. 

2)  The delay to French legislation for microfibre filtration in washing machines, (which was supposed to come into effect in January 2025) is unlikely to stop it from happening within the next couple of years. Indeed, public concern and evidence of the dangers posed by such pollution is steadily growing and some with the EU are working to legislate standards to reduce microplastic pollution. Here in the UK environmental groups, such as the Marine Conservation Society are also pushing for such legislation. Before sceptics shout ‘Balls!’ – read this  article in The Guardian, which painfully brings home the need to reduce microplastic pollution in the environment.

3) The delay to the IFB launch of its 9kg machine with Xeros technology, doesn’t involve its water saving Xorbs technology and is merely a technical fix to avoid consumers overloading their machines. I expect it will be sorted out by the end of Q1 2025 given the ability of Indian companies such as IFB to quickly innovate. I’d also expect the new head of IFB’s consumer division to want to prove their worth by making this happen as soon as possible. 

4) Lastly, Neil Austin has proven he can make deals happen. He has said there are other significant license deals he progressing. Specifically, he mentioned “We are working with a major SE Asian washing machine brand, a major North American washing machine brand and a major European washing machine brand to effectively get them to license the Care technology.” While trials are ongoing I see no reason to doubt his ability to make close at least one or more of them in the next 6-8 months.

Cash position

Clearly, there are concerns over its cash position. It is expected to have £2.9m by year end and some fear it may need to raise again before the end of FY 2025. Currently, it is priced to go bust but I don’t think this is likely.

Of course, investors must be aware of the possible downside if deals/sales don’t pick up. Cash is set to be tight towards the end of 2025 and further funding could be needed. However, the company is aware of the constraints and has several levers at its disposal. Cost cutting is one option, it may also be possible to obtain an advance on license deal revenues. Other companies I follow have done this to avoid dilution, most notably Seeing Machines.

It’s certainly important to monitor the cash situation but I’m confident that further license deals currently under negotiation, revenues from sales from Yilmak, not to mention the launch of the IFB 9kg machine will raise revenues and increase the share price significantly over the next year.

I personally don’t view this as a get rich quick investment but more as a medium term one that could multi-bag on a 2-3 year time horizon. However, over the following months I will be monitoring it to ensure that my investment thesis remains intact.

As an investor it’s difficult to get in at the cheapest point and this is a high risk investment. However, I bought more on the 5th September (before speaking to Neil Austin) as I believed the deal with Donlim would prove to be hugely significant, while the delays are only temporary. Moreover, the backing of significant institutional investors who are in this for the long term gives me confidence that if the business continues to strengthen the revenues will rise, breakeven will be achieved and the price  has to rise significantly.

Interestingly, it seems other canny investors are also viewing the fall as an opportunity. On September 5th  William Black of Armstrong Investments increased his holding to just under 7.3%.

The writer holds stock in Xeros and Seeing Machines.

Seeing Machines takes gold with new world record

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Seeing Machines has proved to the world that it is the leading company in DMS, with its latest set of KPIs taking it past the 2.2m level for cars on the road an increase of 104% year-on-year. It seems set to pass the 3m level, as predicted here a few months ago.

Guardian sales for Aftermarket were also solid: monitored connections rose 19% over the past 12 months to 62k despite the Gen 2 box approaching end of production.

Peter McNally, analyst at house broker Stifel commented: “Seeing Machines seems strategically well positioned for continued market leadership with Tier 1 automotive suppliers Valeo and Magna as partners, rising adoption, a recently homologated Gen 3 aftermarket product and a healthy balance sheet as it heads toward a monthly cash break even run-rate in FY25E.” 

Paul McGlone, CEO of Seeing Machines, said: “We have maintained growth of over 100% in the number of cars on road featuring our technology from 12 months ago, despite the quarter-on-quarter volatility experienced during the year. Regulations are now in place so we are confident that these figures will continue to grow for existing Automotive programs and as new programs start production.

“Similarly in Aftermarket, the new regulation in Europe will require more commercial vehicle OEMs to seek After Manufacture fitment for our Guardian technology, underpinned by successful homologation (regulatory approval) with our Northern Ireland customer, Wrightbus, as announced on 30 July 2024. With Guardian Generation 2 stock sold we are now focused on Guardian Generation 3, initially with European commercial vehicle OEMs, then all customers across existing markets in Europe, The Americas and Asia Pacific.”

Unassailable lead

Seeing Machines has now surpassed Smart Eye and there appears to be no way its Swedish rival can catch up in the short term.

Peter McNally, gave a useful summary of where we stand now:

“Cars on the road is proof of engineering execution: Although its competitor Smart Eye was the first to break the 1 million cars on the road threshold in June 2022, it was still “not quite 2 million” in May 2024 (Smart Eye report Q224 on Aug 21st). Seeing Machines reached 1 million in June 2023 and has been the first to announce 2 million. Seeing Machines has 7 Automotive programs currently in production and we believe most of these are still ramping given it takes roughly 18 months to reach full production. The company has a total of 17 programmes signed worth $392m with many more likely to be added in the future given increasing regulatory drivers and evidence of execution.”

Were there a DMS Olympics Seeing Machines would take gold, with Smart Eye in second place. As for Bronze, I’d hoped to award it to Cipia. However, I wonder if Cipia may be hampered by the likely fallout from Israel’s escalating Israel war in the Middle East.

The writer holds stock in Seeing Machines

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.