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Is Seeing Machines set to be taken over within 6 months?

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Following today’s interview with Seeing Machines CEO Paul McGlone, I’m convinced that Seeing Machines is set to soon follow Veoneer and be the subject of a bidding war, most likely within the next 6 months.

The main driver is its dominance in the automotive driver monitoring space, where it is set to win the lions share of a multi-billion dollar market over the next year. (My view is it wins at least 70% of the RFQs).

McGlone was very candid in the interview and the key part I’m going to refer to starts from around 13 minutes in. There he outlined the problem winning most of the DMS/OMS market brings to a relative minnow:

“In my opinion, this is the beginning of the consolidation in interior sensing. Not the end, the beginning. I doubt very much whether there will be 3 or 4 majors in this space 2 years from now.”

“One of the challenges we have right now is that with almost a billion dollars of RFQs, which is more than we’ve seen in our entire life, on our table today, and we expect another billion next year, we have a really important decision to make. Do we pursue it all, do we get selective and strategic about what we pursue? What are the investment implications for either choice?

It is very, very clear: if we pursue it all and we win at our historical run rate of 40 plus per cent it is a fantastic return on investment. So, over the next 2 quarters we’ll be looking in great detail around the volume of RFQs, the requirements in each of them…the cost of doing them and the return on investment. That is the big decision for us to make. We don’t have to make it now but we’ll be working on it over the next 2 quarters.”

I personally think the opportunity is so huge that even if Seeing Machines wanted to pursue the opportunity offered by automotive alone, it won’t be allowed to do so. However, I think they’ve already decided to sell if the price is right.

By the way, I think that price will be over £1. Looks silly when the price is 10p but huge contract wins haven’t yet been announced. When they are the price will rise and £1 will eventually look cheap.

Qualcomm grabbed Veoneer from the hands of Magna because it sees the strategic importance of active safety in automotive to its future business.

Seeing Machines is of even more importance as its technology is the jewel in the crown of active safety (an area that has grown in importance as the automotive industry comes to realise that mass adoption of fully autonomous vehicles is decades away). While car computer systems will increasingly carry out more tasks for drivers they’ll still need to ensure drivers are paying sufficient attention to take over when required.

Moreover, Seeing Machines technology, which at its height goes far beyond mere eye-tracking and helps computers to assess the cognitive load of a human (including whether they are incapacitated or not), has many uses that go far beyond passenger automotive. This includes trucking and uses in aviation (training simulators, ground control tracking and planes). Shipping and flying cars will surely follow and spacecraft would logically use it eventually.

Yet, its tech has uses far beyond transport: in XR headsets, mobiles, medical devices and robots. In all these markets Seeing Machines technology has the potential to deliver multi-billion dollar revenues to its owner.

That’s why, although I expect it to be valued partly on a forward order book in automotive, its dominance in the trucking and nascent aviation markets will also increase its intrinsic worth.

Crucially, it should also obtain a healthy premium for its strategic importance in developing future markets.

That’s why, although Qualcomm must be red hot favourites to take it over, there is the likelihood that another chip company (eager to spoil the party) or even a private equity firm (awash with dry powder and seeking to acquire valuable assets) will make a bid.

I also think a bid from Apple or even Alphabet is a strong possibility. Each will know its strategic importance to their future plans and be prepared to outbid Qualcomm for it. For example, after the money spent on Waymo for little real return it might make sense for Alphabet to hedge its bets and spend a few billion dollars to acquire a guaranteed golden goose like Seeing Machines. Equally, why should the forthcoming Apple Car not use its own DMS (from Seeing Machines) and use that technology in its own computer chips to power its headsets, mobiles and computers?

Of course, I could be completely wrong. After all, I once thought driver monitoring would be one of the hottest areas in automotive and look how that worked out.

The writer holds stock in Seeing Machines.

Expect massive re-rate of Seeing Machines by year end

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Seeing Machines put out a positive year-end trading update today, without actually providing news of auto contract wins.

Fortunately, they are set to pile up over the next 6 months, with the company admitting it is bidding for a A$900m pipeline from numerous car manufacturers with 16 Tier 1s.

My view is that Seeing Machines, which has been working with the likes of Toyota and VW for years is set to take at least 75% of that pipeline. Indeed, one source (from outside the company) has already told me that A$750m is the figure I should have in mind, which would equate to over 80%. Another source (again outside the company) has recently validated my long-term bullish view on the company’s prospects in auto.

Of course, that pipeline will also grow as OEMs scale up initial contracts further. Indeed, the fact that Seeing Machines tech is now so much in demand must be the reason so many Tier 1s are now scrambling to work with it. They, unlike most investors, have seen the writing on the wall and its reads: ‘Seeing Machines DMS rules ok!’

That of course brings in the whole question of who is going to bid for the company and when?

With a A$1bn+ order book in auto set to become a reality in the present financial year, I’m sure informal approaches are becoming more regular. 

But Seeing Machines is traditional and I have a feeling any match will be an arranged one. One that will need the approval of the whole family of shareholders.

However, Seeing Machines needn’t be in any rush as its value should be considered in pounds not pence. I’ve earmarked the end of calendar year 2022 as the most likely date by which we’ll have some M&A action. By then it will be clear that:

  1. I’m not making this stuff up.
  2. Aviation is another cash cow
  3. VR headsets/mobile phones is a likely growth area for its tech. For instance, its technology seems perfect for the next iteration of the Microsoft Hololens, which only has rudimentary eye-tracking.

The exact timing of any offer depends, of course, on contract announcements and broker upgrades as companies generally prefer de-risked investments. Still, by the end of this year I expect Seeing Machines’ auto division to be almost totally de-risked.

At this point, I want to put in a plea for Seeing Machines to engage Morgan Stanley as a broker and to ensure Adam Jonas is the analyst covering it. It is a plea I’ve made directly to the company in the past and now is certainly the time to consider it seriously. 

SEE is a global leader in one of the hottest areas in tech. Waymo brags about full autonomy but in scale that is decades away. Long before then Seeing Machines tech is going to be in hundreds of millions of cars.

It therefore needs huge coverage in the US, where they naturally think big and fully value a successful global tech company. Who better than Adam Jonas to serve SEE up to the investment world?

Price

Speculating on price is a mug’s game. But then I’ve been labelled a mug multiple times for holding SEE for so many years. So here goes:

Personally, I think £1 is achievable in the next 12 months, provided:

  • VW/Toyota contracts are announced before the end of 2021
  • Someone admits we’re in Honda, courtesy of GM
  • Qualcomm reveal more about our wins together in auto
  • Volvo win is announced (Okay, I just put that in because I crave validation)
  • We get at least one firm aviation licence deal
  • We get Morgan Stanley (more importantly, Adam Jonas) on board

It could be a lot more by this time next year, if:

We get confirmation that our tech is being factory fitted to trucks

We get confirmation that Microsoft is putting our tech into the HoloLens headset

We get confirmation that Apple/Tesla is using us

An aviation license deal provides significant up front payments

If a bidding war were then to kick off, well it could even stretch to an Ayrton Senna. However, I’m sure a certain chip manufacturer or some Private Equity firm laden with dry powder won’t want a bidding war.

Soon, the institutional holders will have to decide: do they want a pound in the hand or a tenner in the bush?

The writer holds stock in Seeing Machines.

Battle of the Titans draws ever closer

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I’m glad to finally get confirmation from Seeing Machines that the Mercedes S Class contains its driver monitoring system. Especially, as this website was the first to reveal this 4 years ago. The additional models announced today are all good news too.

Okay, we all know about NDAs and lead times in the auto industry by now but, as the deadline for mandatory DMS in Europe nears, SEE is clearly benefitting from a rush for its tech from OEMs.

The good news is that there is a growing pipeline of auto wins that I expect over the next 6 months,  My firm view is that Seeing Machines will (eventually) be in a position to announce wins with VW (and Audi), Toyota, Honda, Subaru, Volvo etc. etc.

Seeing Machines has effectively crushed the opposition and with the help of Qualcomm and Xilinx is scaling up its auto operations beyond the expectations of many.

It’s also making huge strides in getting its technology into the real world via Fleet and Aviation. More on that in due course.

My view is that overall it’s heading for A$1bn+ turnover by 2025. Of course, until the news is ‘official’ and house brokers have put the numbers out, there will be justifiable scepticism. Still, the exact number is less important than the massive revenue and profit acceleration path it is forging. That is now becoming increasingly clear to a host of sweet-toothed companies that would love to acquire a de-risked jam factory.

That is why I expect there to be a massive battle to acquire SEE well before 2025. By late 2022, early 2023, I reckon.

The leading runners and riders will doubtless include some or all of the following:

Expect at least one left field bidder, who could even start the auction off with an opportunistic bid.

As to the price? Well, my minimum is £1 a share. My maximum is £4 by 2023.

A warning: I could be completely wrong. After all, maybe it really was blind luck that I guessed about the Mercedes S Class back in 2017. Moreover, circumstances and stock markets can change quite rapidly, defying conclusions based on fairly accurate analysis.

If you’re in two minds about this you have to ask yourself one question: “Do you feel lucky?”

“Well do you punk?”  (2m 11sec)

In any case, do your own research before investing.

The writer holds stock in Seeing Machines.

 

 

 

 

 

Teasing RNS from Seeing Machines

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Yesterday’s RNS from Seeing Machines had some of us hoping that it was alluding to   collaborations with Toyota, Honda and Subaru, when it said: “Seeing Machines is currently working with all major US automotive manufacturers to deliver its industry-leading technology”.

Somebody at Seeing Machines clearly has a wicked sense of humour and I dedicate this track Tease Me to them.

Well, the company has confirmed that what it meant was “traditional US-parented OEMs” not major manufacturers in the US (which would include Toyota, Honda and Subaru).

I’m not disheartened in the slightest as I believe it is working with major Japanese automotive manufacturers and will be in future models from Toyota, Honda and Subaru.

That would be a good RNS to put out. Take your time Seeing Machines as we don’t want to do anything that might double the share price overnight.

Time will reveal if I’m Nostradamus or more of a cut-price Mystic Meg.

The writer holds stock in Seeing Machines.

Why Seeing Machines is grossly undervalued

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Long term holders of Seeing Machines are well aware that it is the global leader in Driver/Occupant Monitoring and seems set to take a 60-75%, chunk of the automotive market driver/occupant monitoring by 2026.

Now estimates of the size of the light vehicle automotive market by this date do differ but not hugely. IHS estimates 110m light vehicles will be sold annually by 2026. Cenkos estimates 112m and a penetration rate for DMS of 67%, with Seeing Machines estimated to win 38% market share in calendar year 2026 producing an annual revenue figure of A$248m from auto alone. (You can see this information on Page 8 of its note issued on 2 February 2021).

Cenkos has a price target of 16p, which certainly appears miserly given the massive revenues that are coming further down the line. The reason for this is two-fold:

  • Firstly, Cenkos has applied a discount rate of 11.5% on its future guaranteed cash flows from vehicles in which Seeing Machines’ DMS and OMS is to appear.
  • Secondly, Cenkios can’t provide figures for RFQs that are expected to be won this year and the cars in which it will appear with Qualcomm. That’s fair enough although Cenkos has admitted that the figures against contracts already signed are minimum amounts and quite likely to increase at least 3 times.

Discount rate to fall

This year, as auto contracts are won – and they will be won – I’d expect a double whammy to significantly increase the Cenkos target price as future guaranteed revenues rise and its discount rate falls.

I’d argue that even now a discount rate of 7% based purely on the conservative (how I dislike that word) figures from Cenkos would be more appropriate given the quantum of risk. Were that to be applied, the price target from Cenkos would be nearer 40p right now.

[For the purposes of simplicity I’ve ignored the accelerating revenues from its driver monitoring as a service Guardian products that feature in trucks. I’ve also ignored its products in aviation — though, they’re expected to be very significant in time.]

Despite the po-faced analytical rigour adopted by many analysts  when discussing equity risk premiums it’s hardly an exact science, more of an art.  The disparate factors you need to take into account are the stuff of which academic careers are made. And anyone who doubts the complexity in modelling them should read this paper by Aswath Damodaran.

Conclusion

What I’m trying to convey is that Seeing Machines is grossly undervalued currently and, though I expect it to hit 40p this year as Cenkos ups its price target due to increased future auto revenues and a reduced risk rate, I don’t expect it to hit fair value even then.

Only when people realise Seeing Machines’ market share is going to be in the 60%-75% region and that it is likely to be bought for many billions as Mobileye was (US$15.3bn), will Seeing Machines price come close to matching its intrinsic value.

My guess is that uninformed observers will wonder in awe as Seeing Machines’ share price accelerates over the coming 12 months. My view is that it’s all very predictable if only you’d conducted sufficient research.

The writer holds stock in Seeing Machines.

Microsaic is a curious gem

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I believe I’ve a found another beaten down stock with great potential, which could easily multi-bag. It’s name is Microsaic Systems (AIM: MSYS) and it makes miniaturised chip-based mass spectrometers.

The beauty is that it’s priced to go bust but managed to persuade some of the smartest small cap investors to invest in a £5m fundraise in January. Gervais Williams of Miton fame now has taken a holding of 7.9% and Intuitive Investments Group (AIM: IIG), headed up by the legendary med-tech investor David Evans has taken a 4.1% stake.

David Newton’s Helium (ISPartners ) holds 9.7% and has been reducing but I don’t think it is likely to sell further, indeed according to an RNS issued on 9 March, Helium has assured the company there are no imminent plans for a further reduction in its sales. (See the full list of holders above 3%)

So why have 3 of the smartest small cap investors taken a stake in this tiny dog of a share?

Well, there is an opportunity that the masses haven’t cottoned onto yet.

Microsaic has some very interesting technology as it specialises in mass spectrometry. Confused? I can sympathise: ‘What the hell is that?’ was my reaction when I first came across the term ‘mass spectrometry’. That may be part of the reason many private investors have ignored it.

Allow me to explain… Mass spectrometers are designed to improve the efficiency of chemical and biological workflows. Specific applications of mass spectrometry include drug testing and discovery, food contamination detection, pesticide residue analysis, isotope ratio determination, protein identification, and carbon dating.

A recent agreement with DeepVerge enables Microsaic’s contamination detection equipment and services to be sold by DeepVerge’s sales network, as well as its marketing and distribution channels in the laboratory, chemical, biochemical, biofuel and biodegradable plastic and waste-water treatment industries.

Still, the development that really has me excited is the collaboration with DeepVerge  to accelerate the development of the MicrotoxBT breathalyser. This ground-breaking device combines miniaturised mass spectrometry with DeepVerge’s AI data analytics to detect spike proteins of the COVID-19 virus, SARS-CoV-2, on a person’s breath. Resulting in fast, reliable, and efficient test results of the population at the point-of-need.

According to Microsaic, this platform has the potential to quickly enable GP clinics to refer serious conditions, by using biomarker binding agents capable of detecting up to 40 diseases on the human breath, including:

  • Cancer
  • Neurodegenerative conditions
  • Respiratory illnesses
  • Metabolic conditions

While I’m always wary of hype from companies, I don’t think this development falls into that category. The investment by IIG, and David Evans personally, also gives it a lot of credibility. After all, Evans has previously invested in multiple multi-baggers in the medical devices market, including: EKF Diagnostics, Genedrive and Omega Diagnostics.

I’ve taken a small position in this stock and will continue to conduct further research. It’s certainly worthy of further investigation as any significant traction should see it multi-bag from here.

Indeed, its new chairman, Gerard Brandon — who just happens to be CEO of DeepVerge — appears to be helping to engineer a transformation in the company’s fortunes.

Brandon has certainly shown that he can walk the walk as well as talk it. He was chief executive of Alltracel, a wound-care company that was sold for US$55 million in 2008. More recently, he appears to be doing great things with DeepVerge.

At the time of writing Microsaic is 0.25p a share!

The writer holds stock in Microsaic Systems

Fisker set to use occupant monitoring from Seeing Machines in A$7m deal

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It seems that US electric vehicle start-up Fisker is set to use Seeing Machines combined driver and occupant monitoring system in its innovative Ocean electric SUV, with Magna as the Tier 1.

The vehicles goes into production in 2022 but Seeing Machines should get near term Non-Recurring Engineering revenues according to house broker Cenkos, which reiterates its 16p price target.

The deal is officially worth A$7m but, as we know from experience, these contracts have a habit of growing as additional models are launched. Hence, A$7m is very much an ‘initial’ and conservative estimate of its real worth.

It’s good news for Seeing Machines as the vehicle is set to be very popular and already has over 14,000 pre-orders. More importantly for Seeing Machines it further demonstrates its global leadership in the DMS and OMS space as it bags its 7th Tier 1 auto supplier.

Nick DiFiore, SVP and GM Automotive commented: “We are delighted to expand our customer base with such a globally capable Tier 1 supplying a highly innovative OEM. I expect this to be the first of many collaboration opportunities as we together target new business across the fast expanding interior monitoring market.

“Having articulated our detailed embedded product strategy late last year and launched our OMS roadmap soon after that, receiving this order affirms both our strategic and technology direction, and our continued leadership position in the DMS market.”

However, investors are really awaiting official announcement of wins with the likes of Toyota and Honda before popping open their magnums of Piper-Heidsieck Cuvée Brut magnum.

The writer holds stock in Seeing Machines.

 

 

 

 

 

Waymo good news for Seeing Machines: part 2

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Interest from US investors in Driver Monitoring is set to take off as it is becoming clear that it offers the means to prevent the deadly death toll on US roads.

Adam Jonas, Morgan Stanley’s star auto analyst, published a note on 24 March, 2021, entitled: ‘What’s on My Mind? Motor Vehicle Safety — A New ESG Frontier’.

In that note he cited a recent report from the National Safety Council (NSC) in which it detailed that despite an historic fall in miles travelled and safer vehicle designs, the number of US motor vehicle related deaths in 2020 hit a 13-year high of 42,600.

Also, according to the study, for every US road death there are 114 ‘medically consulted injuries’, resulting in nearly 4.8m vehicle-related injuries last year.

That represents a huge, avoidable cost to its society, which the NSC calculates at a staggering US$474bn, or roughly 2.2% of US GDP.

Given that cost, Jonas writes: “We believe such tragic statistics may accelerate a range of policies (at the Federal level and otherwise) that may in turn accelerate changes of key ADAS technologies in the US fleet.” He adds: “The average age of a car in the US is over 12 years, amongst the highest of any developed nation in the world. We have long discussed the potential for taypayer/policy actions to accelerate the scrapping and replacement of US vehicles.”

His takeaway is that, while there has been plenty of focus on the climate-related impact of today’s vehicle tech: “We see scope for greater attention to be paid to life-saving/ADAS/autonomous related technology.”

Fortunately, Seeing Machines is at centre of this life-saving technology and interest from US investors is clearly accelerating. 

Moreover, as more and more vehicles are driven in the US with its tech (Ford F-150 and Mach-e, as well as GM Cadillacs) interest will only grow.

Waymo

This will of course be helped by Seeing Machines publicly acknowledging its involvement and RNSing such news. For example, as Colin Barnden of Semicast Research confirmed in an article this week, it has supplied its tech to Waymo.

This blog first wrote about Seeing Machines supplying Waymo back in 2018, still it is about time we had it confirmed via an official RNS — especially given the announcement by Colin Barnden. 

Regardless, I expect Seeing Machines to be rerated imminently (not a word beloved of its investors) as more US investors and analysts realise it is not a jam tomorrow stock but a jam factory gearing up production.

The writer holds stock in Seeing Machines.

 

       

 

 

         

     

    

     

    

    

    

   

Has Airbus consortium won Aussie contract?

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I woke up this morning with a hunch, luckily nothing to do with an uncomfortable mattress, due to my subconscious putting together a jigsaw puzzle that I wasn’t aware I was even attempting to construct.

I’m wondering if the next piece of news that Seeing Machines will announce is that the Airbus-led consortium, to which it belongs, has been chosen to deliver a fleet of specially adapted H145M attack helicopters to the Aussie Special Forces.

If true, It’s not earth-shattering news but would further validate the importance of its pilot monitoring technology in the aviation sector.

In time, this technology may feature in flying cars and also spacecraft. All, additional reasons why the Battle of the Titans, may be kicked off by a bid from either Qualcomm or Intel in order to dominate the automotive space.

Quite aside from the prospects of a bumper pay-day for investors, the sheer long-term potential of Seeing Machines’ technology excites me.

Personally, I’d love to read an interview with one of the founders of Seeing Machines, Tim Edwards. As one of the visionaries behind the company he is probably best suited to explain how  eventually giving robots the ability to recognise and understand human emotions is going to change our world forever. It would be quite something if he eventually shared his insights in an article or, better still, a book.

The writer holds stock in Seeing Machines

Seeing Machines bags Nio

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At the Qualcomm shindig last week, it was fascinating to learn that 20 automakers have selected Snapdragon automotive cockpit, gen 3, particularly as I believe most, if not all, of them will have Seeing Machines DMS integrated into it.

I’m sure that one of them is the Nio ET7, the Chinese would be Tesla killer. You don’t have to be much of a detective to work it out as the clues are all within an easy Google. Nio is signed up with Qualcomm and has an enhanced DMS. Hmmmm does anyone know a supplier of advanced DMS that is working with Qualcomm? Answers on a postcard, please.

Fortunately, Qualcomm also supplied a photo clue last week.

Screenshot 2021-01-26 at 15.44.20

I certainly would not rule out a Qualcomm bid for Seeing Machines in the future. Its technology has applications in markets far beyond automotive that Qualcomm would love to dominate. The more Seeing Machines impresses Qualcomm (and it got a lot of respect last week), the more likely it is to want to snap it up on the cheap. Keep watching.

The writer holds stock in Seeing Machines.