Category Archives: Investing

Magna-ificent performance from Seeing Machines

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Following recent announcements relating to Magna, reinforced by analysis from CEO Paul McGlone at an investor event in London, I’m confident that Seeing Machines’ technology lead across, auto, fleet and aviation will soon start to be reflected in its share price.

The recent news that auto Tier 1 Magna is paying US$17.5m for the exclusive rights to use Seeing Machines technology in its rearview mirrors until the end of 2025, while also agreeing to invest up to an additional US$47.5m, just confirms its global leadership position in Driver and Occupant Monitoring Systems (DOMS). 

Crucially, the cash injection removes any concerns that Seeing Machines needs to raise cash. It is now fully funded to profitability in 2024.

The Canadian Tier 1 Magna has gone exclusive with Seeing Machines in rearview mirrors because it aims to the vast majority of that market, 100% has been suggested by one expert, as no real rival to their DOMS offering currently exists. By partnering with Seeing Machines it has a product that is apparently superior to that of its competitors in terms of price, performance, and time to market. That’s presumably why it won the huge A$125m VW contract in December 2021. 

By 2026, it’s likely that Magna will have won as much as 50% of the overall auto DOMS market in partnership with Seeing Machines – since half of DOMS is forecast to be delivered via rearview mirrors. Thus it will have done to its main rival Gentex what Qualcomm has done to Intel in auto. The huge VW win with Magna should have confirmed this, future wins certainly will. 

It’s no coincidence that both Magna and Qualcomm have chosen to partner exclusively with Seeing Machines. These moves should be seen as part of a strategic land grab that I expect to deliver Seeing Machines at least 75% of the auto DOMS market by volume by 2026.

That is because its competitors (Smart Eye, Cipia, and Jungo) aren’t winning anywhere near the number or volume of RFQs that Seeing Machines is. For example, Smart Eye appears to have effectively been replaced by Seeing Machines in forthcoming BMW models. The 10 BMW models featuring Smart Eye technology are from past wins, such as the X5 (2015) and M8 (2018). 

Of course, OEMs may do some dual sourcing. Speaking to Smart Eye last week its CEO Martin Krantz tentatively said that Smart Eye “will probably be in future BMWs”. I wish him luck but I don’t think it is going to be a threat to Seeing Machines going forward. 

Indeed, investors need to beware of looking in the rearview mirror at market share unless they want to crash their prospects for significant financial gains. For those paying attention to the road ahead, it’s Seeing Machines that is in the fast lane to market dominance. 

Over the past year, Seeing Machines states that it has won 80% of the RFQs for which it has bid. I’m confident it will maintain that win rate with the $A1-2 billion of contracts for which it is currently bidding.

Looking at design wins, Smart Eye currently boasts 94, while Seeing Machines has 120. However, even this figure fails to reflect the latter’s dominance. Not all of Smart Eye’s 94 ‘wins’ made it into production, in contrast, every Seeing Machines design win has hit the road. 

I’ve long admired the Smart Eye people – not least for their PR bravado – but it can’t blind me as to where I should invest my hard-earned dough. I’d also be doing readers a disservice if I didn’t state what I honestly believe. 

Following the Seeing Machines investor presentation Friday, (when the video is posted I will provide a link) I’m very confident that an inflection point has been reached.

Increased margins

From now on license revenues for vehicles hitting the roads will begin to ramp up for Seeing Machines. This is a very high-margin business as the main costs have already been borne in the development phase. It currently has a pipeline of A$395m in auto but this is expected to grow substantially over the next few years on the back of further wins.

Similarly, in aftermarket more large enterprise customers such as Shell are coming along. These margins for selling the product and the monitoring service are much higher than selling indirectly via distributors.

It should also be noted that Seeing Machines Gen 3 Guardian will be launched by the end of this financial year, opening up the prospect of huge scale-up in Fleet sales. The product has apparently been re-engineered to reduce costs yet will be better, with automotive-grade additions and much faster install times. In addition, there is huge money to be made from the service element of monitoring the drivers.

Thus, now there is clear visibility of increasing revenues and cashflows with SEE set to make huge profits over the next few years.

In addition, I’m still confident that a lucrative license deal will soon be struck to deliver See’s pilot monitoring technology into the cockpits of aircraft. Being early is the same as being wrong but I hope by Christmas I’m proven right.

Bids coming

As readers know, I’ve long believed that SEE will face a near-term bid. To that view some have argued that such is its success that it really doesn’t need a takeover to prosper, unlike some of its rivals who hope to be saved by one. I’d certainly agree with the assessment that Seeing Machines could perfectly well prosper as an independent.

However, even if Seeing Machines isn’t ‘up for sale’, it doesn’t mean that it cannot be bought. A wise man recently told me: ‘Great companies get bought NOT sold’. Well, I believe Seeing Machines is a great company.

Ask yourself, how badly must some company want what Seeing Machines has? Its technological lead, data, and market leadership would take years and many billions to replicate for even a company of the stature of Google, Apple, or Amazon. If you had the money (and they do) why wouldn’t you just buy it?

If Magna is prepared to pay millions for the exclusive use of SEE technology for a couple of years, why wouldn’t they want it permanently? Qualcomm, AMD, Intel, and Nvidia also have reasons to enter a bidding war when the starting gun is fired. Indeed, even Gentex does if it wants to win future DOMS rear-view mirror contracts and protect its market share from rivals such as Magna.

There’s even the argument that a consolidator might want Cerence and Seeing Machines to create something very special.

Value stock

As legendary value investor Irving Kahn taught, investing is an art rather than a science but I think were he alive today, he’d take an interest in Seeing Machines as it ticks many of the criteria he looked for in an investment.

The good news for investors is that they can now sit back and enjoy the ride. It has been substantially de-risked, which is why Cenkos upgraded to 25p last week. I expect the other analysts following the company to do likewise in short order as the contracts and license deals roll in. 

The writer holds stock in Seeing Machines.

Will Seeing Machines’ likely Nasdaq listing elicit a bid?

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Rumours that Seeing Machines is planning a dual listing on Nasdaq gained further credibility with the attendance of CEO Paul McGlone at a recent shindig organised by house broker Stifel to promote that very idea to clients. The question is, might a dual listing be the catalyst for a bid?

It’s long been known that a dual listing on Nasdaq has been under consideration at the Aim-listed tech company for a number of years. At a previous investor meeting held online on 24th November 2021 Paul McGlone stated (in answer to the question: ‘Are there any plans to move to a US market?’): “It is in our plan, it’s only sensible that we talk about it. I do imagine that we will end up there but I want to see some additional momentum before we flick the switch on that particular transaction.”

With Seeing Machines coming to dominate interior monitoring with its class-leading DMS/OMS system, it appears that time is drawing close. Indeed, some argue that such a listing would be guaranteed to increase its US profile and enable it to secure more backing from US tech funds.

Stifel served as joint bookrunner on an $85 million dual-listing Nasdaq IPO for Renalytix AI back in July 2020. The price tripled shortly thereafter but has since come right back down. More successful was GW Pharma’s dual listing back in 2013, before it was eventually acquired.

Mobileye IPO

A more appropriate comparison is the Nasdaq IPO of Mobileye, floated for US$5.3bn in 2014, bought by Intel in 2017 for $15.3bn and now in the running for a potential $50bn spin-off IPO, backed by Morgan Stanley. 

Examining the prospectus for the original Mobileye IPO in 2014, indicates that Seeing Machines is set to be a superior business. Not only is it dominant in auto but also in fleet and aviation. Moreover, its robust technology has applications well beyond the transport sector. 

Expected date of dual listing

While it appears that no firm decision has been made by Seeing Machines regarding a precise date for a dual listing, I believe that the much-mooted plan is moving inexorably forward.

My sources indicate that (barring a market meltdown) it is most likely to happen around Spring 2023, by which time Seeing Machines is expected to have achieved several milestones that will have more US tech funds eager to jump in. These milestones include:

  • An order pipeline of $A1bn in auto;
  • A fleet operation that has proven it can scale, boosted by the third generation of its Guardian product, which will be easily incorporated into telematics products for trucks and buses;
  • The launch of a dedicated aftermarket division to sell its Guardian product to niche manufacturers of buses and trucks, with monitoring services sold to their customers; and
  • A licensing deal in the aviation sector.

I also believe that there is an outside possibility that increased momentum in auto and fleet, with Seeing Machines pretty much set to win every contract it contests, could bring forward the date.

Will QC gatecrash the party?

The question is, will the host of chip companies who want SEE’s IP wait until its value has been boosted by a Nasdaq dual-listing IPO before swooping? Moreover, will Qualcomm’s Christiano Amon risk another chip company, or one of the three Amigos (Amazon, Alphabet and Apple) eating his lunch? It doesn’t seem likely. The Arriver acquisition proved Qualcomm fights for want it wants. 

Given the crucial importance of Seeing Machines vision technology to Qualcomm’s Snapdragon Drive automotive stack it seems logical that he will act quickly, to forestall any rival acquiring this important strategic partner. 

Sector ripe for consolidation

The sector is certainly ripe for M&A deals. Even peripheral DMS players are starting to be bought. In fact, one took place late in 2021, with Lattice Semiconductor acquiring computer vision company Mirametrix. The latter has a rudimentary DMS and, according to unnamed sources, went for a ‘huge multiple’ in a private deal. You can see its offering here: https://ir.latticesemi.com/investor-overview/presentations

Note the slide detailing some of the consumer uses for its technology entitled ‘Consumer Challenges’ — it may ring a (door)bell for some investors. The wide range of markets in which SEE’s technology can be used, aside from its transport applications, is one reason it is an attractive target.

Smart Eye would probably love to be taken over as would Cipia. However, SEE is the demonstrable market leader and will be the one that all the major players covet. 

As ever, if you’ve found any value in this article please consider making a donation to a charity of your choice.

The writer holds shares in Seeing Machines.

SmartEye vs Seeing Machines

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In view of the stellar PR coming out of SmartEye today, I felt it worthwhile to mention that while I applaud its chutzpah, I still don’t think its technology matches that of Seeing Machines. That said, I believe both will progress further and eventually be taken over.

Questions for SmartEye

Let me explain some questions that arose in my mind as I read the announcement from SmartEye today.

  1. SmartEye is saying that it has half a million cars carrying its DMS but, if so, they must be selling it very cheaply given the revenues announced.
  2. Given Seeing Machines has already stated that A$900m of RFQs are being decided right now, it seems odd that SmartEye should contradict this with the statement that “several smaller procurements are soon to be decided in the near term”. Is it possible that this is marketing speak for: “We’ve not won VW or Toyota”?
  3. As if to dispel this notion we’re promised: “Three of the largest procurements of DMS to date are due for sourcing in the coming quarters”. Really? Well, don’t hold your breath if you think SmartEye is going to win them against the combined might of Qualcomm and Seeing Machines.

Of course, I am biased purely because I’ve conducted one helluva lot of research. I believe Qualcomm is set to unveil a host of auto RFQ wins before Christmas, with Seeing Machines DMS/OMS in them. And yes, I’m convinced SEE has won Toyota and VW — I just can’t prove it. Certainly, I don’t hear SmartEye mentioning either company.

Regarding fleet, I believe the global Shell deal is set to be huge. I’ve heard whispers that it could be a caterpillar-style deal, with upfront revenues that will bring forward break-even. Though, with Shell in a quiet period, I can’t confirm.

Moreover, See’s fleet arm is making money, while SmartEye’s nascent fleet offering is still pre-revenue! 

As for aviation, we patiently await the imminent takeoff off of Seeing Machines’ licensing deal with L3. It appears to have been delayed by a year. Regardless, given the progress made, the idea that Seeing Machines aviation arm has no value is plainly ludicrous (not in an Elon Musk way).

Bidders circling Seeing Machines?

By the way, I’m still of the opinion that Seeing Machines is very likely to receive a bid from Qualcomm very, very soon. Indeed, one fund manager recently rang me to ask about a rumour he’d heard coming out of the US, regarding a possible takeover of Seeing Machines. He didn’t mention who it was or his source but, if I was Qualcomm, I’d get the ring on Seeing Machines finger fast.

CES might be the perfect opportunity to announce the betrothal to the world. (I also believe SmartEye will also get bought in due course).

My logic? I just can’t imagine that Qualcomm can risk SEE’s tech falling to anyone else, given its importance to its auto stack offering. Look at how it outmaneuvered Magna to get its hands on Arriver. Certainly, Apple or Alphabet have the potential to outmuscle Qualcomm, as they must also know its potential worth. Therefore, I believe a lot of wooing is going on behind closed doors. 

By the way, has anyone dared tell Elon Musk that buying Seeing Machines might get Missy Cummings off his back?

My advice to Seeing Machines: “Don’t sign any pre-nup until you’ve seen the size of their respective wallets. You’re worth at least £10 billion!”

(Do your own research, as the writer may have been high on life while writing this – Ed).

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 ÂŁ1 a share. My maximum is ÂŁ4 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.

 

 

 

 

 

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.

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

Wameja low-ball takeover by Mastercard

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Well done holders of Wameja who held onto this stock and who have received a bid from Mastercard, albeit at a very low-ball price of 8p, well short of its 20p valuation from FinnCap. That is the price of holding only a minority interest, I guess.

Holders should hold on for the time being for 2 reasons:

  • 1) They won’t lose 0.5p a share as the offer price from market makers is currently 7.5p,
  • 2)  I noted the wording in the RNS today: “In the absence of a superior proposal” the bid has been accepted. There may be a slim chance Visa could come in to frustrate the process and set off a bidding war.

I hope long term holders of WJA as well as readers of my blog made some money out of this  stock, as Wameja was mentioned on Safestocks as a takeover play. However, it would be remiss of me not to acknowledge that FinnCap analyst Lorne Daniel put me onto it with his excellent analysis.

Lessons for Seeing Machines

There are lessons from this for private investors (and even management) in Seeing Machines, I believe.

Firstly, Lombard Odier, which holds 23.45% has accepted the Wameja offer. I do hope Seeing Machines is eventually taken out at a healthier premium. However, at its current price it remains vulnerable, particularly as Lombard Odier, via Volantis 1798, holds a jumbo 19.9%.

This also has lessons for holders of any share; there is an opportunity cost for holding a stock for years and years in the hope of a bumper pay day.

The writer holds stock in Wameja and Seeing Machines.

 

React cleans up after Covid-19

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In an exclusive interview with Safestocks, Shaun Doak CEO of AIM minnow React (AIM:REAT) reveals that this specialist cleaning and decontamination company has benefitted from the high demand for its decontamination and infection control services to eliminate the virus responsible for the coronavirus.

Currently, React is carrying out Covid-19 decontamination clean-ups from everything from police vehicles to offices to manufacturing plants. “I can’t give you much detail, because it’s commercially sensitive IP, however the way we carry out our decontaminations is lot more thorough than many of our competitors, that is for sure. We do ‘before’ and ‘after’ testing to ensure we have decontaminated property to a high standard and certify swabbed areas are clear from traces of the virus. We use the correct chemicals and equip our operators beyond the standards required to ensure their health & safety. We set ourselves apart by doing things the right way.”

He continues: “Just to give you a little flavour of that, we do a lot of Covid-19 decontaminations that have already been decontaminated, allegedly, 2-3 days before. But they haven’t been done properly. The ATP-testing we apply hasn’t been done, which we do in order to certify the property as clear.”

Not only have its 90 staff been working flat out to meet demand for its specialist decontamination services but he also foresees that this pandemic may alter the mindset of people as to the importance of regular deep cleaning. “We’ve all worked in offices that have never experienced a deep clean but I think that moving forwards things may be very different. I think it has to be.”

“Once lockdown is relaxed I think there will be an increased sensitivity towards hygiene in the workplace.  More specifically, there will likely be pushback from employees that won’t readily wish to go back to their place of work until the premises have been decontaminated. That may not necessarily be a Covid-19 decontamination, it may be just a deep clean. However, any incidents of property being exposed to the virus will be dealt with rapidly until such time that COVID-19 no longer remains a threat. That is certainly some of the information I am receiving from customers out there, anyway.”

Indeed, just as London bus drivers have hit out at lack of protection and are demanding that their buses are properly deep cleaned, it would be surprising if employees (especially unionised ones) across the whole of the UK don’t want to ensure premises are safe before returning to work after the lockdown. Indeed, I believe employers will wish to eliminate the risks to their employees, visitors and the business of repeat infections as a result of contaminated property.

For its part, React provides its employees the best PPE equipment available and certainly to a higher standard than your average deep cleaner, as Doak explains. “When Covid-19 reared its ugly head, people who were working on contract work for us, including  hospital work and rail sector, we went above and  beyond Public Health England and the World Health Organisation requirements to protect our staff. The reason I did that was firstly, I have a background in construction and place a heavy focus on health and safety. Secondly, we are only as good as the staff out there carrying out their job. As a brand we have a strong reputation for the excellent standard of work carried out by our staff. The last thing I wanted to do was to risk exposing them to danger in any shape or form.”

React goes after difficult work with decent margins and therefore its employees are also paid well, which certainly seems fair and makes for a well-motivated workforce. “We pay our specialist operatives well, a lot higher than most would appreciate, but we appreciate what they do is unpleasant stuff that no one else wants to do.

Beyond Covid-19

Doak is at pains to stress that React is not just a provider of Covid-19 decontamination services. “We are not just a Covid-19 clean-up company, we are a specialist deep cleaner. I believe the best out there.”

“We carry out specialist cleaning and decontamination work that other companies just don’t want to, or aren’t qualified to do. Because of that our customers value what we do and pay us appropriately. Likewise, we pay our staff well and appropriate for the specialist work they carry out.”

Thus, it gets involved in everything from deep cleaning within the healthcare sector, hospital trusts, cleaning up after road traffic accidents, picnic sites after a bank holiday, huge fly tips by the side of the road, drug dens knee-deep in needles, flea invested properties as well as train fatality clean ups for the majority of train companies. All of this takes place right across England, Scotland and Wales using its partnership/sub-contractor network.

It is also important to appreciate that the React business is divided into 2 parts: of approximately equal size of revenues; reactive cleaning services – which is supporting the deep cleaning requirements; and regular maintenance services.

What has become clear with the £500k contract in the rail sector that was won in January is that React is now able to leverage relationships that it has built up, to be a one-stop shop for a variety of complex cleaning jobs, a sort of facilities management house for specialist cleaning services. 

I therefore believe that the increase in demand for its services isn’t just a flash in the pan and that it is set to be profitable from here on in — something of a rarity for a growth stock.

This company is flying beneath the radar of most investors, both because of its tiny £3m market cap and the lack of forecasts in the market. That said, it is expected to be profitable at the interims and for the full year. As it said in a Trading Update RNS published on April 6th: “At the start of the financial year, which runs to 30 September 2020, management expectations had been for the business to move into profitability after reporting annual losses for the last four-years.  Recent trading, notably in March, has been ahead of management expectations and as result the Group is likely to have delivered a small operating profit in the six months to 31 March 2020, which puts the Group in a good position to meet or exceed management expectations for the full year.”

Another positive is that aside from CEO Shaun Doak, who appears to be doing a fine job selling the services of the company with some big contract wins recently, there appears to be a surprising amount of in-depth management expertise within this micro-cap. These include a new Financial Director and a new Operations Manager. 

In summary, React is much more than a Covid-19 play and I believe the business will continue to grow profitably. As it does, the share price should appreciate substantially. Indeed, in time, I’d hope to see a dividend.

The writer holds stock in React.

The bad, the good and the ugly

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Seeing Machines put out a half year trading update yesterday that for entertainment value rivalled a Spaghetti Western. All that was lacking was a thumping soundtrack by Ennio Morricone, though many investors’ racing hearts would have supplied that as they read the announcement and accompanying broker note.

Certainly, the update was a slight disappointment, albeit a massive improvement on the first half a year earlier.

The Bad

Although the company’s guidance for the full year to June 30th 2020 remains unchanged, house broker Cenkos (in a note littered with errors – see page 3) took the opportunity to downgrade revenue projections, increase losses, indicate that SEE could need cash by end of financial year 2021, all while lowering its valuation to 11.4p from 12.1p. No wonder the price dropped!

Here are the changes for the current financial year:

  • Estimated revenues for financial year 2020 reduced from A$47.5m to A$45.5m.
  • Adjusted pre-tax loss increased to A$39.2m from A$35.9m

In FY 2021, according to Jean-Marc Bunce’s own figures this leads to a funding shortfall of A$4.4m.

The concern in investors minds must therefore be how might SEE deal with this if these figures turn out to be accurate? It’s certainly worth keeping an eye on.

The good

Still, both SEE and Cenkos hint that it may be a problem that will soon find a solution. After all, Seeing Machines “remains in advance (sic) discussions with parties for a licensing deal” say Cenkos, quoting Paul McGlone. It assumed that this is for aviation and cranes/ferries but may also be for gaming via Qualcomm.

There are also long overdue OEM auto deals that haven’t yet been announced that I believe SEE has won as well as many more due this year. For example, I’m in the camp that believes SEE have already won Volvo and I am hoping that Veoneer will announce a win its forthcoming quarterly update.

Thus, while panicked investors and canny traders have recently been selling, an announcement on a material deal that puts to bed funding concerns will see a huge and immediate rise in the share price. That is surely why Volantis 1798 have been buying up shares as weak hands let go. They are big and active investors and seek to make huge gains. I expect them to continue buying up to 19.99% and obtain a boardroom seat.

I am sure that they, like me, believe See is fundamentally undervalued and potentially worth billions. Those who doubt this statement need to do more research and then decide for themselves. In the words of Warren Buffett: “Price is what you pay; value is what you get.”

The ugly

I don’t believe Paul McGone would risk his reputation saying deals are expected if they weren’t coming. He has already lost some credibility with the delay over the ‘imminent’ Aviation licensing deal. As a result he can’t be said yet to be ‘walking the walk’, although fleet does seem to be largely fixed. If SEE fails to close the Aviation deal and announce some OEM wins in the next 3 months, he’ll be looking as if he is walking like Max Wall (watch from 3m 50secs). The best option then might be to follow in the footsteps of previous management and say, ‘Auf Wiedersehen’.

What annoys me is the lack of transparency as per the fleet 20k installations saga.  I also don’t like the underplaying of contract sizes and Seeing Machines’ likely share of the automotive market. Yet, stealth has its advantages when your share price makes you vulnerable to a low-ball bid. 

The writer holds stock in Seeing Machines