Category Archives: Investing

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.

$16.5m license deal for Seeing Machines with slight delay for Gen 3 ramp

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Seeing Machines (AIM: SEE) surprised the market with a ‘good news-bad news’ RNS, that led to house broker Stifel reducing its price target to 13p, while still maintaining its ‘Buy’ recommendation.

The good news was that it has renewed its software license for its Guardian aftermarket product with Caterpillar. It appears that is has received a $16.5m upfront payment covering a period of 5 years.

Unfortunately, it was effectively overshadowed by the bad news; a statement that “cash EBITDA” was behind expectations, due to a slower transition to the Gen 3 product.

Stifel analyst Peter McNally doesn’t appear to be overly concerned by the Gen 3 delay, reducing revenue estimates by 7.1% and 6.0% for FY25/26. He also assumes a higher level of operating costs going forward resulting in his reported EBITDA estimates dropping from $14.3m in FY25E to $7.0m and cash EBITDA loss falling to $10.8m from $3.5m. With the benefit of the cash from Caterpillar, his FY25 gross cash estimate reduces by a smaller amount to $14.2m from $17.9m.

He wrote: 

“The cash EBITDA weakness has been due to a slower transition to Gen3 Aftermarket products, and we think this will have an effect on our forward estimates, which we adjust to reflect today. However, the company reiterates its guidance for FY25 cash flow run-rate breakeven and the payment from Caterpillar helps boost the company’s already healthy balance sheet.

As the company gets closer to cash flow breakeven, we think the shares will appeal to a much broader group of investors, which should have a beneficial effect on the share price.

Seeing Machines remains one of our top picks within the sector. The shares trade at 4.1x EV/Sales for FY24E or 3.4x for FY25E. The estimate changes result in a revised target price of 13p from 15p, but leave plenty of upside to the current price.”

My personal view

I was very pleased with the license deal, particularly as it enables SEE to sell into the on-road portion of the General Construction category. As the RNS stated: “The changes open up access for Seeing Machines to sell its Guardian solution for on-highway vehicles directly and through its distribution network to select customers in many market segments of the General Construction and other core industries.” 

I wonder if it might even open up the possibility of further licence deals with other manufacturers in the near future, covering vehicles ranging from asphalt pavers, backhoe loaders, cold planers, fork lifts and so on?

What was a mistake in my view was combining an RNS detailing a positive licence deal and one attempting to explain the slower sales of Gen 3. Indeed, I would have preferred the ‘cash EBITDA” issue to have been dealt with in a separate RNS as part of the Trading Update. 

Unfortunately, the way the information was presented effectively killed what was a very good news story without giving any real insight into the issues with Gen 3 uptake. It’s not the first time great news has been upstaged by something negative and it was a clumsy way to communicate to the market.

Regarding the ‘bad’ news, the RNS that was published this week posed more questions than it answered. The reasons for the slower transition to Gen 3 weren’t properly explained, so I expect management to soon clarify exactly what has caused the delay. I’d also like to know if it correct to assume a higher level of operating costs going forward.

That said, Gen 3 is a game changer once it gets going. And that isn’t like to be far off. One source, who prefers to remain nameless but is so accurate that I refer to him as Nostradamus, told me: “I’m expecting sales to ramp up around November/December.” 

Another source has indicated that getting final sign off from the regulatory authorities for the Aftermarket Gen 3 Guardian solution in situ was the delaying factor. (I guess we should be thankful that the EU’s GSR standards are so high). However, that has apparently been achieved recently, so I’m expecting announcements regarding that. 

But why wasn’t that communicated in the original RNS, which would have made clear that the slow Gen 3 uptake really is just a temporary issue that has effectively been resolved? Somehow there appears to have been a miscommunication that cost investors dearly.

Mercifully, for the impatient, auto is doing very well. Not only am I confident that SEE will hit 3m cars on the road by the end of this financial year but Colin Barnden, the renowned analyst at Semicast Research, confirmed the likely ramp on LinkedIn. “The assumption is just the BMW and VW programs will lead to DMS deliveries exceeding 1 million units per quarter within the next twelve months. After many years of delays and frustration, 2024 will be the year DMS deliveries finally exceed ten million units.”

Apparently, the mix in terms of auto vehicles in Q2 led to a slight miss on the profit front for auto but with volumes shooting up it’s of little concern going forward. So why mention it in the RNS? 

I’m still very keen on this stock but would really like a little more care taken in the way news flow is handled and the RNSs are put together. It appears a bit too amateurish for a company that is a global leader in an increasingly hot niche market.

The writer holds stock in Seeing Machines

Is Seeing Machines set to be a 10-bagger?

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Seeing Machines has hit a 3-year low but my research leads me to believe that it will announce contract news before the end of the current financial year that should catapult it well into double figures. Inside the next year I’m hoping it will become a ten-bagger.

Mr Market is looking in the rear view mirror instead of focusing on the direction of travel; near-term profitability and years of profitable growth ahead across Auto, Aftermarket and Aviation. 

Yes, anticipated auto contracts have been delayed but through no fault of Seeing Machines. According to my sources delays have been caused by haggling between Tier 1s and the OEMs. Nothing to do with the superlative technology of SEE. As the OEMs need a quick solution I anticipate the delay will be overcome soon.

Nevertheless, I’m still expecting auto contract wins before the end of this financial year, probably with Japanese OEMs. These should be sizeable contracts and one name that keeps on popping up is Honda, but I’m optimistic we win another too. Japanese OEMs are behind the curve on interior sensing and Seeing Machines could help improve their position.

I’m also expecting to see some decent Aftermarket contracts announced. A big name client could have a huge impact so I would be grateful if it’s not buried in an RNS on the grounds of an NDA.

As positive news comes out many PIs will be tempted to sell, some may need to. Yet, I think the momentum will continue, driven by auto KPIs, aviation products being developed with Collins Aerospace, and a growing realisation that Seeing Machines is going to be profitable on a monthly cashflow basis during the 2025 financial year. This was confirmed by Peter McNally, an analyst for house broker Stifel, in a recent interview with Safestocks.

That momentum, accelerated by broker upgrades, should enable holders to experience the joys of holding a ten-bagger within a year from now.

Of course, nothing is certain. Especially with two ongoing conflicts in Ukraine and the Middle East, not to mention some sectors of the US stock market in bubble territory. So, do your own research and  always question assumptions.

The writer holds stock in Seeing Machines.

Seeing Machines set to become cash flow positive in FY2025

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In an exclusive interview with Safestocks, Stifel technology analyst Peter McNally has confirmed that his view is that Seeing Machines does not require a fundraise and is set to become cashflow positive, on a monthly basis, in the 2025 financial year (FY2025).

Peter McNally, took over coverage of Seeing Machines at Stifel (house analyst) five months ago but he has known the company for a number of years. I think his insights will prove invaluable. I’m presenting my questions and Peter McNally’s answers in a Q&A format to preserve the integrity of his answers.

Q&A with Peter McNally

Q. Regarding the H1 2024 Trading Update & Quarterly KPIs, what was your view?

Firstly, the KPIs look good to me. They are the only company out there that is actually doing any normal KPIs and providing transparency. The cars on the road number at 1.5m is a great milestone to reach. We know it is just the beginning. The numbers themselves look very healthy, we’re not changing estimates or anything like that.

What we saw was that everything is in line. We wondered if the headline number of 5% growth was going to dissuade any folks. We tried to call out on our note that they are not making excuses for themselves by stating that the underlying growth is 28%, if you take out that Magna exclusivity licence. It is actually quite valid because that 28% growth is more around royalties, boxes, monitored connections and that license really is kind of a one-off.

That was 28% growth in the first half. Based on our estimates, to hit the full year numbers they have to move from US$26.5m in the first half to US$40m in the second half. That sounds like a big number but for them it is actually not. Typically, the company revenues are 40% first half weighted and 60% second half weighted — to get to our number assumes 61% weighting in the second half. That is pretty much in line with typical seasonality. You also have to keep in mind that you have some sales that were done of the Gen 3 Guardian product on the back of CES and, as regulatory deadlines approach, there will be demand for more services. 

Their existing launches are still ramping, so we think that is good news. If you were to do it on a like-for-like basis, it assumes the second half grows at 20% and they just did 28% in the first half. So we’re pretty comfortable with it.

Regarding the cash position, we’re also comfortable with that given that we expect a $14m increase in revenues in the second half while the costs are virtually the same. There is about $1m increase between this year’s costs and last year’s costs, and I am talking cash cost not just income statement costs. 

The cash costs for this business in FY2024 are, in my estimates, only about $1m more  than they are in 2023 but revenue rises by $7.9m. The company hasn’t cut its cost structure by much, it’s just that the revenues are coming through. That is what reduces the cash burn down to a very low level, along with $5.5m of receivables and inventory unwind in the second half. They are saying somewhere between $5-6m.

Q. So there is no reason for a raise this calendar year?

A. There is no reason for a raise at all, so far as I can see. Unless they wanted to. They are on track to be profitable next year. It’s not a shoo in, they’ve certainly got their work cut out for them. It all looks like it’s going to plan, so we’re not worried.

Q. When exactly do you expect Seeing Machines to be cash flow positive?

A. Our estimates assume that on an operational basis in FY2025 they will do operating cash flow of just over $21m but we think they will spend about that amount on capitalisation and hardware as well. We have a small net cash outflow of about US$1m for FY2025. However, on a monthly run-rate basis, they will become cash flow positive during fiscal 2025, but we haven’t put out the exact month.

Q. Is there a likelihood that they might want to make an acquisition? For instance, to add more features to their auto offering?

A. I would say that at the moment they are 100% focused on the business that they have at hand. That doesn’t mean that they are not opportunistic. If something were to come up I’m sure they would have a look at it. But I don’t think acquisitions are on the radar screen at the moment. Maybe they might be, further down the line. Could it be some form of geographical expansion, I think that’s possible. 

In terms of features they are in the driving seat. They are the one who is developing the features in the marketplace. I don’t think they need to buy in any features, I think they can develop them themselves. If there’s a short cut to development time that’s always a consideration, but I don’t think that’s in their mind at the moment.

Q. In terms of a US listing I hear a lot of chatter. However, if they do decide to go down that path isn’t it much further down the line, say 18 months to 2 years away?

A. There are many people who have suggested a US listing at some stage. Will they do it? I don’t know. I guess they could consider it but I think they have a lot of ground to cover before they would consider something like that. I think they are focused on making this business work right now rather than another listing.

Two years from now they might be in a very comfortable position, where the royalties are just rolling in. If they were to consider a US listing I think it is much further down the line.

The writer holds shares in Seeing Machines.

Lexus DMS found wanting by Euro NCAP

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Toyota’s luxury brand Lexus recently had its DMS tested by Euro NCAP and got a miserable 0.3 out of 2 points. The vehicle in question was the 2023 Lexus RZ. 

It must have come as a huge shock to Toyota, which is struggling like Tesla to deal with the influx of quality Chinese cars. I understand that Woven (not Smart Eye) was the supplier.

It’s actually a huge positive for Seeing Machines and I’m feeling pretty confident that Toyota will do the sensible thing and find itself a supplier that can deliver maximum points from the Euro Cap DMS test. I certainly don’t expect it to choose Smart Eye, by the way.

I’m also hearing that Volvo may be experiencing buyer’s remorse for its choice of DMS. Let’s wait and see what happens there.

While the share price of Seeing Machines is an annoyance, I’m increasingly confident that the couple of auto wins predicted by Paul McGlone will come to fruition by the end of the first quarter of 2024. He delivered on Gen 3 Guardian and I can only reiterate my belief that all the auto contract delays have been due to the OEMs.

The writer holds stock in Seeing Machines.

Peel Hunt note questions Smart Eye and Seeing Machines comparison

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Peet Hunt Analyst Oliver Tipping has issued a broker note on Seeing Machines that questions the contract size for Smart Eye’s recent US$150m win, while stating that Seeing Machines puts out minimum values for its wins. This is a point I made recently but, coming from Peel Hunt, it confirms it for any doubters out there.

Still, the most important point made in the note was that aside from its most recent $30m win, there are many more auto contracts expected to be announced by Seeing Machines early in the New Year. Tipping wrote: “This win was the first of the major European contracts Seeing Machines was hoping to win before the end of the year, thus its pipeline remains robust as it looks to deliver more wins in early 2024.”

The numbers game

Tipping also confirmed that Seeing Machines is very conservative regarding its contract values: “It  is  important  to  remember  that  the contract value Seeing  Machines reports is conservatively  based  off  minimum  production  volumes,  which are  likely  to  be  far  lower  than  the  actual  production  values  for  these contracts.”

Then he went on to caution investors. “It is vital for investors to be aware of the  differences  between  the  numbers  thrown  around by different  companies  in the DMS market. For example, it would be easy to be distracted by the SEK 1.55bn (US$150m) figure quoted in Smart Eye’s most recent win (which we believe to be General Motors). However, we are unclear how this figure has been calculated as Smart Eye  does  not  disclose its  method  for calculating the  value  of  these  contacts. In addition, this contract was as a tier 1 supplier to the OEM. Given it currently acts as a tier 2 supplier to this OEM, its CEO stated volume as a tier 1 supplier is only likely to ramp in 2029, into the 2030s (not from 2027 as mentioned in the RNS) and  thus  has  no  impact  on  cash  generation  in  the  short  to  medium  term.” 

Tipping went on to stress that the key indicator of success is cars on the road, stating: “Until Smart Eye starts reporting this number, the tangibility and true worth of the contract wins remains unclear.”

Still, I’m sure the figures put out by Smart Eye will help it immensely in any future fundraising efforts.

Aside from dealing a knock-out blow to those who think Smart Eye is the global leader in driver and occupant monitoring, the note maintained its ‘Buy’ stance on Seeing Machines and its 12p price target. 

Importantly, it also confirmed that Seeing Machines has, as promised by CFO Martin Ives, started to cut its expenditure. Analyst Oliver Tipping wrote: “Management confirmed that it has executed the first of its cost-cutting measures aimed at bringing the cash burn down to break-even by FY25 (-$3m a month exit run rate from FY23). We await further details in  the  1H24  update,  but  this  will  be  crucial  in  underpinning  the  long-term viability of the business. For now, the company has a strong balance sheet, which should see it to its targeted break-even date.”

Auto contracts worth $1bn

With its latest win Seeing Machines now has auto contracts officially worth US$366m. However, as previously stated, given Seeing Machines propensity to cite minimum values that turn out to be much larger, I believe the real worth of those contracts is approximately 3 times that. Yes, $1bn! 

Why is that significant? Well $1bn in auto contracts surely makes it a very desirable candidate for a takeover in the very near future, particularly as it is soon to hit break-even.

With the move to assisted driving taking over from dreams of full autonomy and legislation coming into effect this year in Europe that mandates driver monitoring, the future is looking very bright for Seeing Machines.

The writer holds stock in Seeing Machines.

Don’t despair with SEE: do more research

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I must admit to having been a bit distracted by the ongoing genocide in Gaza over the past couple of months. Still, I felt it important to provide my views on the recent Kr1.55bn (US$150m) Smart Eye contract, as I know a lot of investors are rightly concerned by lack of news flow on the automotive front from Seeing Machines (AIM: SEE) – aside from a relatively small (US$15m) contract win in early November.

I do think the recent Smart Eye contract is with General Motors, as that has been the conclusion of 3 sources better placed than me to know about it (Colin Barnden, the RedEye analyst and my private source). Am I particularly concerned? Quite frankly, no. My guess is that, and it is only my guess, the contract is dual sourcing at bargain basement levels. As to the size of the contract, well SmartEye normally pump out the biggest figure they can so the lifetime value given is likely an absolute maximum.

Still, it is big positive for SEYE and I wish them well. The market is big enough for both SEE and SEYE and things are clearly hotting up in this space. 

As to SmartEye, being a Tier 1? Well, I think that is wishful thinking. Possibly a case of necessity being considered a virtue. For I still maintain my thesis that SEE takes 75% of the auto market with the Magna mirror and Valeo.  

Positives for SEE

If there is a positive for Seeing Machines, it’s that the logjam regarding larger auto contracts appears to be over. Moreover, the SEYE contract starts in 2027 so I think SEE via the Magna mirror has won a lot of contracts that will start before then.

That said, if we don’t get a big auto contract by the end of this quarter it’s definitely a disappointment. It’s particularly so given the fact that the strong likelihood of multiple contracts this quarter was flagged by both CEO Paul McGlone and his CFO, Martin Ive, in various interviews.

Still, I do believe they are honest and have been let down by OEM shenanigans re. The announcement of further contracts. My hope is that CES will deliver the news we’ve been waiting for re. Auto, with great news coming for Aftermarket with the launch of Gen 3 Guardian.

Indeed, I’ve been impressed by Ive since he joined (and not just because he looks like my younger brother). I also hear that he is cutting expenditure, as promised, to ensure SEE reaches breakeven as promised.

More effective communication

In the absence of said contract news, I’d like to see more timely and effective communication to stem the concerns of private investors. They (unlike fund managers) can’t just ring up the CEO to check on their investments. Moreover, for a private investor their investment often represents a huge proportion of their investment portfolio, not a mere 5 per cent maximum as in most funds.

I ask for this because I fear that many private investors are currently selling down their holdings because of a lack of reassurance from the company. Times for many are tough and I’d hate for private investors to miss out on what I increasingly believe will be rich rewards.

Please don’t take my word for any of this, it’s just my humble opinion and I’ve been wrong on details in the past. That said, being too early into an investment isn’t the same as being wrong. Indeed, I maintain that my original investment thesis remains intact, which is why I still hold this stock. In any case, do your own research as it will benefit you in the long run.

The writer holds stock in Seeing Machines.

Seeing Machines revenues beat broker forecasts

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Seeing Machines trading for the FY2023 ending 30 June, was US$57.8m, beating all broker estimates. Moreover, it points to the current financial year being a transformational one for the AI-powered, vision-tech safety company.

Indeed, my model’s prediction of revenues at $60m would have been hit had the US$3m contribution from Collins Aerospace been included. Never mind, as the money was actually received in August, it will go into the 2024 figures.

All three divisions (Auto, Aftermarket and Aviation) are doing very well and will see growth increase over the next year.

  • AUTO. There are now over 1m cars on the road with Seeing Machines DMS in them, an increase of 143% over the past year. Moreover, the numbers will accelerate as more vehicles with its tech are launched to meet the requirements of the EU’s General Safety Regulation, which comes into effect in July 2024. I still believe it will achieve a 75 per cent share by value of this global market – although, hitherto the company itself has only confirmed 40 per cent by volume and 50 per cent by value.
  • AFTERMARKET. The Guardian business had almost 52,000 heavy vehicles connected, with record sales (10,000 plus) in the fourth quarter. That represents an annual growth rate of 30 per cent but I expect a huge increase this year with the launch of its third generation offering, at a higher profit margin.
  • AVIATION. This is starting to deliver revenues following its exclusive license deal with Collins Aerospace. Aside from license revenue of $10m over 3 years, it will also receive non-recurring revenue payments to develop specific solutions, which will in turn evolve into potential future royalty payments as products are shipped to customers.

I can only agree with the comments from analyst Damindu Jayaweera at Peel Hunt who, in a note published today, concludes:

“Since initiating coverage, the company has delivered positive surprises in the form of a large aviation contract with Collins Aerospace, and this FY23E beat. With the support of the Magna contract, we see a cash runway well into FCF generation. Despite all this, the shares are back to 2018-20 levels, when it looked as if the company would run out of its cash runway. We believe this dislocation is an opportunity that investors should exploit, following in the footsteps of all the insider buying we flagged in our initiation. We reiterate our Buy rating and 12p TP.”

In my humble opinion, Seeing Machines represents that rare combination of a value play that is set for stellar growth. However, do your own research.

The writer holds stock in Seeing Machines.

Seeing Machines rises in expectation of positive trading update

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The price of Seeing Machines is rising in expectation of it beating consensus forecasts for the 2023 full year to 30th June, when it provides its trading update on 22nd August.

To refresh your memories, here are most of the broker forecasts for Seeing Machines FY2023. Unfortunately, I’m missing that of its house broker, Stifel. 

Brokers2023 revenues (US$)2023 adjusted pre-tax loss
Cenkos 53.5m15.2m
Panmure 56.7m13.2m
Berenberg 54.1m16.8m
Peel Hunt 53.8m17.1m
Stifel


Safestocks60m11m

I’m confidently predicting that Seeing Machines will beat these estimates and have pencilled in revenues of around US$60m for 2023. I’m not even going to provide 2024 estimates as I expect all the brokers to upgrade soon. Indeed, even their initial upgrades won’t factor in likely progress over the course of the 2024 financial year.

There is also a frisson of excitement around the launch of its Gen 3 Guardian Aftermarket product. I expect to learn the date for the launch of its Gen 3 product for trucks on 22nd August. I’m hoping it is before the end of September and is announced with at least one sizeable contract — it must have been going through its paces with existing Fleet customers.

Auto and Aviation appear to be progressing well and further positive updates could well drive the price to all-time highs by this Christmas. 

EBITDA breakeven

Furthermore, I’m expecting confirmation of further news in the coming months that should send the share price into overdrive as EBITDA breakeven is brought forward. Breakeven at the EBITDA level isn’t more than 12-18 months away based on the current trajectory. Still, I expect sales to accelerate from here to such an extent that I believe there is a likelihood that we hit EBITDA breakeven by the end of the current financial year. Should brokers publicly confirm this the share price will go gangbusters.

My confidence in the near term is also strengthened by a comment from the analyst now covering Seeing Machines at Berenberg. In a note dated 21 July, 2023 Robert Chantry stated: “We also expect the company, in the medium term, to leverage its significant knowledge pool and expertise to develop new products and adjacent technologies, particularly once it has achieved breakeven at EBITDA. This might include other types of transport, as well as revenue streams relating to marketing.”

Given that Seeing Machines always plans years ahead you can be pretty confident that what Chantry opined isn’t mere conjecture.

Here are my thoughts:

  • Transport. I believe that in the past Seeing Machines has undertaken some marine trials of its technology and we know it has been used in trains. The fast-growing eVTOL market seems ripe for such tech plus there is all manner of machinery, from tractors to cranes that could perhaps do with it. It surely is a no-brainer that SEE’s tech get’s licensed to Tier 1s in other transport sectors now that it has Auto, Aftermarket (Fleet) and Aviation sewn up.
  • Marketing. Eye-tracking has been used by competitors to assess the efficacy of marketing, for instance Tobii. As Tobii has entered the DMS space (albeit with no sign of success), it seems only fair that Seeing Machines returns the favour.

Tesla

Strangely enough, I received a press release this week from CMC Markets that mentions that Tesla is the UK’s most googled S&P500 stock, with an average of 260,180 Google searches a month. In my books that is probably a sign to sell the stock. In a saner world, those people would instead be googling Seeing Machines. 

An additional irony is that Tesla really ought to be putting Seeing Machines Driver Monitoring into its vehicles. It would stop ‘bad Ted driving’ and save lives.

The writer holds stock in Seeing Machines.