Category Archives: Investing

Seeing Machines gunning for automotive market with spin-off

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Seeing Machines (AIM:SEE), the Australian software company specialising in eye-tracking technology using innovative algorithms, looks set for a significant uplift in its share price with confirmation that it is launching a spin-off in the US dedicated to serving the automotive sector by the end of June.

The stated intention is that the company will follow the Mobileye trajectory and eventually IPO in the US, a prospect which is likely to have both institutions and shrewd investors clamouring for shares over the next few months.

Despite recently announcing a maiden interim profit, its share price had been held back by concerns that it would need to raise more funds in order to serve demand for its world-leading technology.

However, in an exclusive interview with Ken Kroeger, CEO of Seeing Machines, he revealed that the company is set to raise between US$50m to US$100m setting up a spin-off that will focus exclusively on the auto industry and develop a new hardware module.

This should produce 3 main benefits:

  1. It will take development costs out of the overall business.
  2. Enable Seeing Machines to move up the value chain by developing hardware (which will be manufactured by a third party). So, instead of getting $10 a car profit, it will be able to get between $25 to $35.
  3. Enable it to work with more Tier 1 suppliers and OEMs.

As part of this Seeing Machines has signed a memorandum of understanding with Takata, that officially ends its exclusivity deal with Takata.

The new company will be called ‘Fovio’ and is expected to be launched by the end of June this year.

Ken Kroeger, CEO of Seeing Machines explained: “It will be a separate, US-based company. It will have about 40 people and take about 35% of the cost out of the parent company. The US company will own 100% of the Australian subsidiary that would house around 40 employees. Seeing Machines, and the current shareholders  will not have to reach into their pockets and write a substantial cheque but will own a substantial portion of that business.”

When pressed as to what “substantial portion” meant, he explained that is how he had to refer to it.

He added: “That business would be completely set up to start its march towards an IPO on the US board, mirroring Mobileye’s journey. It would have a separate board, separate management and we are in the process of recruiting a CEO in the US.”

As to the backers, he revealed: “The investors are at the big end of town (sic), we already have term sheets and they range from automotive OEMs, through the silicon companies into some of the other strategic industrial partners that we want.”

The new module is expected to come to market in late 2018, early 2019.

Until then, Seeing Machines will be continue working with Takata on delivering its software, as Kroeger explained: “The good thing is that we continue working with Takata. It is a new agreement not a divorce, so in the interim we will keep on delivering with Takata.”

Seeing Machines and Takata will be working on another 15 models for the same OEM that it has been working with to deliver a model that will be go into production late this year to be on sale next year. In addition, it is working on another 3-4 requests for quotations expected to happen this year.

That OEM is rumoured to be General Motors and the model that will first use Seeing Machines driver monitoring software, as part of it Supercruise feature, is said to be the Cadillac CT6.

The writer owns shares in Seeing Machines

See and Tide float my investing boat

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I’m hardly surprised that stock markets around the world have been tanking, indeed the surprise for me has been how long it has taken for people to realise that the global economy is in a very bad way. Moreover, things are likely to get a good deal worse as the US economy weakens.

This doesn’t mean I’m completely bearish about stocks: I favour some small caps. In an era of low GDP growth, innovative and well run small caps will still thrive. One of which, Crimson Tide (TIDE), has been re-rated slightly following good news but it has much further to go.

Another, Seeing Machines (SEE) has barely moved despite lots of evidence that it is making inroads into selling its eye-tracking technology into the Driver Monitoring Systems of automotive manufacturers, while conducting successful trials with fleet managers.

The price is stuck at around 5p and I guess it won’t start to move until official RNS news comes out  detailing launch dates of cars containing its technology and signed contracts with trucking and bus companies. I’m taking advantage of this stalled stock price to load up, as opportunities like this don’t come round too often in my experience.

With its technology proven by the likes of Caterpillar it isn’t a jam tomorrow stock but rather a caviar fairly soon one. We’ll see – perhaps I’ll end up eating my words?

One piece of information I haven’t seen elsewhere is that Miton hold around 4% of SEE. And fund manager Gervais Williams is still keen on the stock as he revealed in this article (P62 ‘From Tech Acorns
)

I hold both companies but do please conduct your own research before investing your hard-earned cash.

Seeing Machines driving forwards

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AIM-listed Seeing Machines is making great inroads into its target markets, yet the year end figures alone don’t really give much indication of this. Hence the price at around 4.5p has remained static. However, at this level it appears undervalued.

For the year to June 30, 2015 revenues grew 20% to A$21.2m, although this Australian company produced a thumping loss: A$10.2m (approx £4.7m), which was significantly up on the previous year’s A$2.7m. Moreover, cash outflow rose to A$21.5m, offset by a fundraise of A$10.8m, leaving net cash of A$14.4m.

Still this loss has to be seen in the context of a growth company that is investing heavily in R&D, sales and marketing while making good progress in cracking markets for its innovative driver safety software products aimed at 6 key global markets.

These markets are:

  • truck and mining equipment
  • commercial haulage fleets of trucks
  • cars
  • rail
  • aviation and simulators
  • consumer electronics.

Mining

It has successfully cracked the truck and mining equipment market with an alliance with Caterpillar, the largest manufacturer of such vehicles. Post the year end it announced that it had signed a US$17.5m deal with Caterpillar whereby Caterpillar will take over responsibility for manufacturing, marketing and sales of its DSS off-road product. In addition, to this payment (US$9m of which Seeing Machines will receive by January 2016), it will also receive royalty fees for DSS hardware, software licensing, monitoring and analytics services.

This is quite an achievement given the state the global mining industry is in and shows that even in markets hit by macroeconomic turmoil, the benefits of its products are unquestionable and it can deliver growth.

Commercial fleets

Caterpillar will also distribute its ‘Fleet’ product, which was launched in April. Given that the company is estimated to have over 3m vehicles in this area it bodes well for future growth in this segment.

The fleet product is essentially a cheaper version of its caterpillar driver monitoring system designed specifically for trucks, busses and other commercial fleet vehicles. It provides drivers and supervisors with real-time notice of when a driver is either tired or distracted. It has already made its first order for 750 units in South Africa and has put in place distribution networks around the globe.

Cars

It’s perhaps the development in the car industry that are really going to grab headline over the next couple of years and hopefully increase its profile among the general public. Here it has been working with a Tier 1 automotive safety supplier Takata. Its first product in this market is likely to be launched at the Los Angeles Car Auto Show in November. It will be in the Chevvy Super Cruise from General Motors, which will be on sale in 2016.

In addition, it is working with a number of other auto-manufacturers on safety and entertainment systems so the prospects for further launches appear excellent.

The quality of its partnerships is also quite staggering for a ÂŁ45m small cap. In the area of aviation it is working with Boeing to develop a pilot monitoring system. One has been installed in a Boeing Flight Services 737 Flight Simulator at the Brisbane International Airport. They are also working with a subsidiary of Caterpillar, EMD to develop a train driver monitoring system. Lastly, in consumer electronics they are working with Samsung on televisions that can monitor audience reaction. Most companies would probably be viewed as a bright prospect working with these alone.

Analyst view

Lorne Daniel, analyst at house broker finnCap has forecast a small adjusted pre-tax profit of A$0.8m in 2016 on revenues of A$43.2m. Revenues are anticipated as falling slightly in 2017 to A$43.2m with an adjusted pre-tax loss of A$9.1m as the exceptional boost from the Caterpillar deal falls out of the figures. However, he sees the business taking off in 2018, forecasting sales of A$65.8m and an adjusted pre-tax profit of A$8.3m.

Despite the company investing almost £15m a year, it appears fully funded for profitability. Of course, given the scale of its ambition it is just possible that it could raise more to finance another ‘transformational’ partnership.

When I spoke with Lorne Daniel he was certainly very enthusiastic about the company. Indeed, in a note issued on September 22 he estimated the mid-term value of the company at ÂŁ480m based purely on a sum of the parts valuation on the prospects for the Caterpillar/DSS, OEM auto and fleet businesses.

I’ll quote his concluding paragraphs to explain how keen he is on the company. “This is not a blue sky valuation. There is little if any credible competition in its markets, and revenues are already flowing from them. There evidentially little risk in the CAT business; there is a strong pipeline for the automotive OEM opportunity; and straightforward execution risk in the commercial fleet business. We have ascribed no value at all to the rail, aviation or consumer electronics market opportunities at this stage.

Even discounting the above £480m valuation of a mature business by 75% for the risk and time needed to achieve these sales levels would suggest a £120m value or 12p per share target price at a minimum.”

It is hard not to agree that Seeing Machines is terribly undervalued, particularly if you look at the valuation of a peer called Mobileye. This US-listed, Israeli company develops vision-based advanced driver assistance systems providing warnings for collision prevention and mitigation. Its systems appear less impressive than Seeing Machines and fortunately non-competitive, although the company is already making solid profits and is valued at US$10bn.

Prospects

Seeing Machines’ technology is proven, as are the deal making skills of its management. Coupled with the realistic prospects for the future this seems as close to a multi-bagging one-way bet as you could wish for.

Of course, it may get taken out by a bigger company long before then. Market Eye certainly has the cash to do it and acting soon would mean paying a fraction of the price it would cost to buy this Aussie innovator in a couple of years.

Alternatively, given the progress this company is making in actually enabling computers to see and gauge human reactions, it would be no surprise if Google or Apple already have their eyes on Seeing Machines.

The writer holds shares in Seeing Machines.

You should always conduct your own research before investing.

Crimson Tide set for a re-rating

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Small cap Crimson Tide (AIM: TIDE) seems set for a re-rating following news of its latest big contract win, a £1.1m revenue deal over 36 months with one of the country’s leading retailers, much of which should go down to its bottom line.

It’s a pity Crimson couldn’t name the company as it would most likely have set a rocket under the share price. Still, every little bit of revenue helps.

Given that rollout of the deal for its MPRO5 software service is expected to start by the end of this year, with invoicing building during a deployment process the impact should be felt most heavily in the 2016 financial year.

Analyst Eric Burns from house broker WH Ireland commented: “Whilst clearly positive news, we leave forecasts unchanged for the time being (FY 2015E estimated revenue ÂŁ1.4m, pre-tax profit ÂŁ177k, earnings per share (EPS) 0.04p; full year 2016 estimated revenue of ÂŁ1.8m, pre-tax profits of ÂŁ421k, EPS 0.09p) and will review our assumptions once the rollout dates become clearer. We reiterate our ‘Speculative Buy’ recommendation and 2.25p share price target.”

Much of Crimson Tide’s work delivers margins of around 80%. Even if one were to assume lower margins on the work, this deal should significantly boost pre-tax profit forecasts for 2016.

The news follows an announcement in June of a deal worth “at least £218,000 of contracted revenue” over its 4-year term.

More significantly its relationship with Nestle appears to be progressing well in Australia and it is apparently working on installing further systems in Germany and the US.

Given this is a minnow, with a market cap of only £8m, I’m expecting an upbeat interim statement at the end of September after which profit forecasts should be significantly increased.

As a debt-free, profitable company that is growing revenues and profitability, with increasingly good earnings visibility, it seems cheap at 2p.

In a year’s time, I expect that this will look very much like a buying opportunity regardless of how well the overall economy or stock market is doing.

Of course, small caps are by their very nature a risky play. Still, in this instance I’m very happy to eat my own cooking. I’m in good company as David Newton’s Helium Special Situations fund increased its holding to 20.45% in January this year.

Video interview

If you’d like to learn more about the company, watch my interview with executive chairman Barrie Whipp, from last year. It gives you the basics about the business.

The writer holds stock in Crimson Tide

A global stock market crash is coming

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Those of you tempted to believe that this week’s ‘Black Monday’ was an aberration should note that a huge, global stock market crash is likely to be with us pretty soon.

China is exporting a tidal wave of deflation to the US (an economy already in trouble) and as it hits things are going to get very bad indeed.

Forget the market soothsayers employed to talk up the prospects of the stock markets. Their analysis is wanting, their predictive powers non-existent.

You’d be better off following the analysis of the three men below. Compared to the vast majority of commentators they are market oracles. The message they have to impart is sobering.

Professor Steve Keen

No less a figure than economist Professor Steve Keen, who predicted the 2008-09 Great Recession, explained in an interview last year that the US was headed for a long period of stagnation. It is due to the build up of private debt (among both corporates and the general public).

Economies across the globe have been fuelled by the growth of private debt and, given the already high levels of debt, further growth cannot be sustained for very long. That is why the ‘recoveries’ in the US and UK are below trend and stop start.

Because of this reducing private debt not public debt is the issue that should be concentrating the minds of our politicians and economists. Hence QE for the people, which reduces this burden makes a lot more sense than QE for the banks.

Until now, all QE for the banks has done is:

  • encourage banks to continue speculating with cheap money from tax payers
  • created asset bubbles in areas such as property, stock markets and bonds where this money has been invested
  • encouraged ordinary investors to take on excessive risks in order to get decent returns
  • blinded the public to the way they are being fleeced by the political-financial elite that rule over us and finance this Ponzi scheme.

It is a pity that until the arrival of Jeremy Corbyn the Labour Party leadership failed to explain that the bank-bail out was the real reason the UK public debt ballooned. 

In any case, austerity in the present economic climate is madness, the wrong medicine at the wrong time.

Mitch Feierstein

Mitch Fierstein is the author of Planet Ponzi and a hedge fund manager. He knows the system from the inside out and is one of the sharpest commentators on the manipulation at the heart of our financial system. At the very least you should follow his twitter feed. The insights fly out of him like sparks from a Catherine Wheel.

Often only when going over his comments in detail do you become aware of the really deep knowledge he is imparting. For example, the most recent revision to US second quarter GDP, indicates that the US economy is doing fine growing fine with an annualised rate of growth of 3.7% revised up from 2.3%.

However, as Feierstein pointed out in a tweet yesterday (August 27th) US Gross Domestic Income (GDI) increased at an annual rate of just 0.6%.

This is what Shadowstats had to say on the matter in a note published yesterday: “Not only was that revision unbelievable, it also ran counter to the indication of stagnant economic activity seen in the initial estimate of second-quarter 2015 Gross Domestic Income (GDI), the theoretical and a practical equivalent to the GDP. The pattern of GDI stagnation for first-half 2015—not the faux surge in second-quarter GDP—is consistent with better quality monthly reporting seen in series such as industrial production and real retail sales.”

Albert Edwards

He’s been labelled a ‘bear’ by many bulls. Yet he accurately predicted that Chinese devaluation was coming months ago and that it would lead to a tidal wave of deflation heading West.

When it hits the US, it won’t be pretty. Forget cheaper gasoline prices and commodities. They aren’t much use when you’re out of a job because your economy has gone back into recession.

Okay, the US won’t raise interest rates. When it becomes clear that it is falling back into recession, QE4 may be unleashed. However, more bank bailouts (which is what QE is all about) won’t save the US economy from turning Japanese and stagnating.

This week, in a note published on August 27th, Edwards explained: “Despite deflation fears washing westward and US implied inflation expectations diving to levels not seen since the 2008 Great Recession, there remains a touching faith that the US is resilient enough to withstand further renminbi devaluation. And if it isn’t, why worry anyway, because QE4 will be around the corner. But let me be as clear as I can: the US authorities CANNOT eliminate the business cycle, however many QE helicopters they send up. The idea that developed economies will decouple from emerging market turmoil is as ridiculous as was the reverse in the first half of 2008. Remember Emerging Market and commodities had then de-coupled from the wests woes until they too also crashed. “

He also stated that we are already in a bear market. “While equities rebound investors are hoping things are quickly returning to normal. One of the many lessons from equity investing during Japan’s Lost Decade is that in a secular bear market hope is a killer. In a secular bear market hope should only be flirted with briefly during cyclical upturns, but it must be ruthlessly rejected as the cycle turns. In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months. One key measure we monitor informs us conclusively: we are now in a bear market.”

Time to be fearful

When men as smart as the 3 oracles above tell you that things are turning nasty it is time to listen. Far from being greedy it is now time to be fearful.

Certainly, it is time to take profits/hedge your winnings. Avoid leverage and take all money you need for the short term out of the market.

Even in a bearish environment physical gold and silver should do well and probably selective, innovative, small caps.

P.S. Please BBC put on a show like RT’s The Keiser Report and interview these 3 people. Their deep knowledge is desperately needed by a mainstream audience fed incoherent nonsense until now.