Sensible shift in strategy

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Following the news this week that Seeing Machines (AIM: SEE) is to raise £17m to fund the development of Fovio, its auto-focused division, I wanted to give my immediate reaction.

I view this as a positive development as my fear that SEE itself might risk losing control over its IP in spinning out the division with external funding appears to have been well founded.

If you want chapter and verse on this I’d recommend you read an excellent note published this week by Lorne Daniels, the analyst at SEE’s house broker FinnCap.

To be honest, though, the timing took me slightly by surprise:Ā I’d half expected such a move in October when the finals were announced but had been reassured that funding was in place until June 2017.

Why raise now?

So why are they raising now and not at the end of the first quarter of 2017, given that SEE had sufficient cash till June 2017? Well, my guess is that funding concerns may have been holding up negotiations on some contracts.

That SEE is in negotiation for some big deals appears to have been confirmed in Lorne Daniels’ note this week, in which he wrote: ā€œā€¦fleet sales of Guardian v.1 have been sluggish but are set to be boosted by several large deals under negotiationā€.

Certainly, the local Dubai media have quoted officials in Dubai appearing to confirm that SEE has won 2 separate tenders to supply its Fleet technology in both taxis and buses. However, SEE has not been officially named and so I’m guessing the contracts are still to be signed.

It’s also possible that other successful trials and negotiations (in auto/trains and aerospace) will move more swiftly as a results of this fundraise. Let’s hope so.

The timing of this raise could also prove to be very fortunate if stock markets do plummet by the end of the first quarter of 2017.

Despite the ā€˜Trump reflation’ effect that has boosted stock markets, which expect a huge US$1trillion stimulus and tax cuts, I’ve a strong feeling it will end in tears by the end of the first quarter of 2017.

This is because, as Jim Rickards has pointed out, the stimulus effect will be far less than the market expects (due to Republican opposition), while the Fed appears to be likely to further tighten monetary policy with another rate rise in March 2017.

When the market realises this, you can expect a fall, possibly even a crash. Raising money then will be much harder.

Now that SEE’s immediate funding concerns have been put to bed, I’m confident positive news flow will move this much higher over the next few months. According to Lorne Daniels SEE should now be funded to profitability.

However, if CAT and Fleet sales disappoint next year, it is conceivable that SEE might need to raise more funds. Hopefully, that won’t happen: as any such raise would then give rise to fears of a share consolidation, which rarely ends well for private investors.

I’ll certainly be keeping a keen eye on the news flow over the next 3-6 months.

Of course, this is a personal view and shouldn’t be taken as financial advice.

The writer holds stock in Seeing Machines.

Seeing Machines at a crossroads

Regular readers of this blog will know I’m very keen on Seeing Machines. However, its would-be spin-off, Fovio has been delayed for a few months now (it was intended to spin it off by July 1, 2016) and the costs are still being borne by the main business. Therefore, while Monday’sĀ results show great progress in many areas I wanted to concentrate on the likelihood of its being ā€˜forced’ to raise cash in the very near future.

From my discussions with management it appears that the cash position is now A$11m. The present cash holding will be boosted by an in principle agreement with CAT to bring forward Ā US$7M by Christmas (for although the revenue was recognised in the 2016 accounts, the actual cash is spread out). In addition, there should be around A$4-$5m coming in from fleet sales to assist working capital.

Even if SEE were to carry the full cost of auto, which is estimated by the Lorne Daniel, analyst at house broker finnCap as A$14m, overall net spend will be A$25m in FY 2017. This means that although finance would be tight by next June the company isn’t compelled to fundraise immediately.Ā 

According to SEE’s interim CFO, James Palmer: ā€œThe plan is still to spin off Fovio by Christmas. However, we can comfortably carry Fovio until June 30, 2017, which would give us ample time to go to a plan B if we need to. That is if plan A wasn’t working in the best interests of the shareholders and we had to look at an alternative structure.ā€

Chief Executive Ken Kroeger stressed: ā€œThe only thing that would change that is if we decided that a spin-out isn’t the best thing for current shareholders. We have invested another A$4m into automotive since year end and we’re not necessarily going to get more equity for that. In parallel to that, that $4m has delivered a whole lot of outcomes that we might not want to give away to somebody else and we are out there pursuing business that we could win between now and Christmas that would increase the value of the company, and which we might not want to give away at the current valuation.ā€

ā€œOur view is that the delay, while consuming cash, is increasing the value of our business and unless that is properly recognised in the spin out, we have the ability to reshape that if we choose to,ā€ added Kroeger.

Certainly, SEE seems keen to let potential investors know that it isn’t desperate for cash and its trump card is that the auto industry is desperate for its technology. Indeed, among auto OEMS, I understand that it’s only the Koreans that are not using its DMS technology. All the rest they are doing something with.

Fleet

Fleet is very important as aside from CAT it is the only part of the business currently generating revenues. In the year, ended 30 June 2016 it sold 1,666 units and already in the first quarter of its 2017 financial year it has managed to ramp up sales by approximately 3000 units, with a cumulative total of now 6,000 units sold.

Moreover, its pipeline of assessments continues to grow. At the end of June it had 34 on the go but when I sat down with Chief Operating Officer Paul Angelatos this week he joked: ā€œWe’ve not been sitting on our hands since the year end and in fleet we now have 45 assessments underway.ā€Ā The total number of units this potentially represents is roughly 160,000.Ā 

In addition, part of the strategy is to work with telematics providers in order to get sales in very large volumes as he explained:Ā 

ā€œMost of the large fleets we are working with already have a telematics solution installed, (tracking the vehicle, tracking driver behaviour in terms of harsh braking, cornering, acceleration,Ā etc., with GPS and an ability to transmit data)…Our product development is now focused on being able to integrate with the existing technology, stripping further cost out of our product, reducing the complexity of installation but more importantly allowing us to access existing customer bases with these partners.ā€

SEE now has memorandums of understanding (MOU) with 3 telematics providers and is having preliminary discussions with a fourth. As Angelatos commented: ā€œThe strategic telematics partners that we are now talking to effectively give us access to an installed base of over 2m vehicles.ā€

ā€œWe should be able to return some revenue from these strategic partnerships this financial year. It won’t be significant but it does set us up for FY18, where we have the new product, we’ve proven the integration, we’ve proven that our technology works together, so we’ll be able then to access that volume market.ā€

In this financial year (2017), fleet revenues will be derived largely from direct sales and distributors.

ā€œTypically our model now is selling as a service, so we are looking at a bundled subscription fee per vehicle each month which is in competitive with other Mobile Resource Management (MRM) solutions. This provides a customer with a hardware solution and the full suite of analytics and monitoring of their fleet,ā€ addedĀ Angelatos.

ā€œWe have expectations of a certain number of units this financial year and next financial year it is an exponential increase based on the fact that we are going to be able to access some existing installed base with those partners plus new sales, ā€ he concluded.

Conclusion

It appears to me that that there is a possibility that if SEE doesn’t get the deal it wants for the auto spin-off very soon, one option could be to fund this division itself with a smallish capital raise in order to retain more value and control.

While this might appear fanciful, if revenues from Fleet continue to increase over the next few months, the amount to be raised for auto needn’t be hugely dilutive to existing shareholders.Ā 

There certainly wouldn’t be any shortage of Silicon Valley VC capital willing to invest in SEE itself, not to mention mutual funds and private investors.

Moreover the upside it would be capturing and retaining for investors might well outweigh the short term effect of any dilution. Indeed, if a fund or company bought in at a premium that would be a very bullish sign.

What I would hate to see would be a dilutive fundraise followed by a share consolidation that wipes out long term private investors such as myself. Yet, I get no indication such a move is on the cards.

Certainly, concerns over cashflow have been holding it back for a good while now and it makes strategic sense to keep Fovio in-house, in my opinion.

An eventual flotation of the whole company on Nasdaq could then set it up for a meteoric rise. For example, just look at the mouth watering (US$9.2bn) valuation of Mobileye and ask yourself where SEE is likely to be a year from now.

This last thought is pure speculation on my part and there are a lot of hurdles to be surmounted before then. Still, whichever plan SEE chooses toĀ  follow it is very much undervalued at its current share price.

As always, I’d advise that investors do their own research and not rely on the thoughts of others.

The writer holds stock in Seeing Machines.

Analyst very positive on Seeing Machines

As the UK was voting to leave the EU I was speaking with Lorne Daniel, the analyst at house broker FinnCap who covers Seeing Machines.

It was Lorne who first opened my eyes to the enormous potential of this AIM-listed company.

Like me, he’s very much looking forward to the automotive spin-off, expected to raise up to US$50m, perhaps in two tranches. Interestingly, he feels confident that SEE will maintain a high stake, around 75% in the initial funding round, perhaps dropping to around 50% in the second round.

This is what he said: ā€œIn the initial round, I was thinking Seeing Machines would have 75% and the investors will have about 25%. Then it would drop to around 50% for the second round.Ā  Nothing has been confirmed yet but that was my thinking.

ā€œI guess we will find out but as I understand it they need around US$50m. So, however that comes in, (for example, $25m and then $25m), I would be disappointed if they didn’t value their own IP at US$50m plus.Ā I think it is worth, far more than that by any sort of calculation.ā€

ā€œBut to be fair, these initial investors are likely to be industry giants taking a big stake and they will want their cut. That’s fine.

ā€œThe template is Mobileye which has a US$8bn valuation on the US market with revenue of just US$240m. If Seeing Machines’ automotive spin off gets anywhere near that rating nobody will worry what that initial valuation was.ā€

Now my belief is that GM Ventures is the cornerstone investor and that VS Industries is investor number two. I don’t know who the third might be but I’m hoping it may be Intel.Ā 

We shouldn’t have to wait too much longer to find out, given that Seeing Machines announced that lead investor had signed a term sheet on May 16.Ā 

Fleet

Not only is SEE getting 15% of the growing royalty stream and monthly revenuesĀ  from sales of its product by Caterpillar, but it involves virtually no cost. Moreover, as soon as a telematics deal gets announced, and we already have MOUs, this will have forecasts upgraded substantially. This is turn should lead to a significant price rise and a further re-rerating.Ā 

It’s significant that Seeing Machines is now leveraging insurers and telematics companies to roll out its technology in a cost-effective way.Ā 

As it starts to grow you can also expect momentum traders and larger funds to start getting interested in the company, which would drive the price up further.

Of course, all this supposes that things go smoothly, which is never the case in business.Ā 

Price target

Lorne Daniel currently has a price target of 12p on SEE and I’d expect that to rise following either the launch of the auto-spin-off or a significant fleet contract.Ā 

Takeover

I’d be concerned that as the company is so undervalued, particularly given the limited downside and the virtually unlimited upside, an attempt to take it over on the cheap can’t be ruled out. This could be a direct competitor, or possibly a partner on the telematics front, or even Mobileye whose technology offering would be significantly enhanced.

In fact, I could reel off half a dozen companies that might logically seek strategic advantage by buying SEE.

However, the auto spin-off (by providing independent valuation of its IP far in excess of its current market value) will make this eventuality less likely. Certainly, any company then wishing to takeover Seeing Machines will have to pay a significant sum. I personally don’t think US$1bn would be an unrealistic sum to expect at that stage.

As the auto spin-off is very likely to be completed this side of Christmas (key management should definitely be in place by then), I’m prepared to stick my neck out and say that within 18 months I expect SEE to have a valuation of between 50-75p. That’s quite a rise from 3.25p at the time of writing.

Of course, you should always do your own research before investing.

The writer holds stock in Seeing Machines.

Seeing Machines share price

This is just an update following the unusual movements in the Seeing Machines share price.

Yesterday I contacted Ken Kroeger, Chief Executive of Seeing Machines, to try and find out if he or FinnCap knew of any reason for the recent falls. What he told me was: ā€œEveryone’s view is that it’s Dixon’s selling of the original holding from the IPOā€.

Hopefully, that should put some minds at rest. There is a natural tendencyĀ to jump to the wrong conclusions when trying to reasonĀ why a share price is so volatile, particularly as ā€˜buys’ are often reported as ā€˜sells’ with this share.

Certainly, the business is progressing and I don’t believe long term holders (investors) should be concerned – though day traders will have to have their wits about them.

Re. Fleet I’ve had it confirmed by Kroeger that Seeing Machines has ā€œresponded to a taxi tender in Dubai and expects a response in the next few weeksā€. I also believe a similar process is underway with the Public Transport Authority in Dubai and that a response to that tender will likely follow along a similar timeframe.

The reason for the tendering process is that as government agencies they are required to put contracts out for tender.

In addition, See is also close to appointing 2 more distributors for the Fleet product, but they are not signed up yet.

As to how this week’sĀ retail roadshow has been going, the feeling is that it has been very ā€œpositiveā€.

The writer holds shares in Seeing Machines.

Seeing Machines making progress

Seeing Machines produced a positive trading update today and I firmly believe that this company is very undervalued at its current price of 3.25p.

What was lacking was hard detail on contracts won in fleet and more detail on its share of the auto spin-off. Yet, if only half of the fleet trials convert and the auto spin-off goes ahead smoothly it should multi-bag by Christmas.

The company is making great strides, communication as to how well it is doing is increasing and I’m confident that positive news flow will drive the share price forward to reflect the growth in business.

Some of the following update is based on a very recent, exclusive interview with CEO Ken Kroeger. In it he was at pains to stress that he’s going to be making a big effort keeping investors informed about developments. For example, Seeing Machines is in the process of revamping its website and he explained: ā€œWhat I am trying to do is create an ongoing, regular conversation with investors through our website. The Seeing Machines website will become the portal for investors and if they want to drill down into the companies they can.ā€

He’s slightly hamstrung by the fact that trials of such an innovative product take time to convert and confidentiality is an issue that often prevents disclosure.

I can see that the company is light years ahead of where it was only 3 years ago. It is now converting its computer vision based IP into commercial product and starting to promote these product brands/companies: CAT, Guardian, Auto, Nucoria etc.

Yet, that is probably of scant consolation for shareholders who have seen the share price sink over the past few months.

From my most recent conversation with him and today’s RNS, I’ve put together the following:

Caterpillar

As the update explains, here Seeing Machines is moving ā€œfrom a low-volume, high-value hardware business to an annuity and licensing-based revenue, high volume, lower unit cost product business model. Aside from the A$21.85m one-off Caterpillar licence fee that will boost revenues for the current financial year, there should also be recurring and growing revenues from product and services. These amounted to US$420,000 from Jan-March 2016 and are expected to grow in the quarter from April-June 2016.

That said, excluding the one-off revenue for this financial year Seeing Machines expects ā€œother sales and service revenue to be lower than the last full year.ā€

Fleet

This product became available to customers in September 2015, without a formal launch and minimal marketing. The salesforce, comprising mining experts, eventually had to be replaced by road transport experts.

Since then, it has formally launched an improved product (with front facing camera) at mining shows: 3 in the US and 2 in Australia under the ā€˜Guardian’ brand.

Following the launch of Guardian, it has built up a very solid pipeline of product assessments with potential customers, ā€œover 30 around the worldā€ according to Kroeger.

To give some idea of the volumes he’s talking about he added:Ā ā€œIf we successfully converted all of those assessments we’d probably have somewhere around 120,000 – 150,000 vehicles in those fleets.ā€ Moreover, some of them are apparently very big companies.

While he doesn’t expect a 100% conversion rate, he did reveal thatĀ these assessments are going ā€œreally wellā€. In addition, Caterpillar has also made its first fleet sale.

Kroeger also explained: ā€œWe are currently designing the second generation solution, again, with VSI and other external expertise. It will be lower cost and modular in design so that it can be sold as a complete stand-alone solution as it is now or it sold as a companion or add-on to an existing telematics solution by only using some of the module (camera, HMI, image processing and not the geo-positioning or telecommunications elements that could be present in an already-installed telematics service); again being lower cost as result.

ā€œThe logic in this approach is that we are working with large telematics companies to provide them an affordable technology that they can sell to their customers in high-volume at the lowest possible cost while still providing a direct to market, Guardian solution that is affordable to operators that require the complete technology solution due to not having a telematics solution in their vehicles or where the telematics solution is not compatible with ours. The telematics suppliers are seeing a lot of consolidation and are looking for means of differentiation. Our discussion with them are focused on turing them into Ā an additional, high volume, channel to market with their existing customers.ā€

For those seeking names, Kroeger added that he was currently working with 2 global telematics companies (ā€œwith over 1m connected trucks combinedā€) and that, if possible, he’d hope to provide more detail in the next Fleet update — which I expect to be in a couple of weeks.

Naturally, investors may be frustrated that he can’t put those names out immediately. Still, if he says it is happening you can be certain it is. What he can’t control is the marketing sensibilities of huge multinationals that prefer to be named at a time of their choosing.

There’s also been progress in Auto, Aerospace and Rail but I don’t have much to add to the RNS.

Understandably, the lack of detail is a frustration, made harder to bear by the downward moves in the share price. However, I’m very confident that continued patience on the part of investors will be amply rewarded over the next few months.

Of course, there is no substitute for your own research and investors should always take care not to invest more than they can afford to have tied up for a year.

The writer holds stock in Seeing Machines.

Seeing Machines confirms auto spin-off by end of June

In an exclusive interview today,Ā  Seeing Machines’ CEO Ken Kroeger confirmed to me that theĀ innovative developer of eye-tracking technology is on-track for the launch of an spin-off company by the end of June this year, raising between US$60-100m

ā€œWe’re trying to close the finance by mid-June. We’re expecting it may slip a little bit but we’re pretty far advanced and have made an offer to the CEO; we’re starting to structure an org chart and plan what the business looks like as it moves beyond this organisation.ā€

The new entity will employ around 70 people (some part-time), there are likely to be a total of 5 board members including the CEO, with one representative from Seeing Machines on the board.

Kroeger couldn’t reveal who the cornerstone investor is nor the exact percentage stake that Seeing Machines would hold, saying in today’s announcement only that it would retain a ā€œsignificant equity stakeā€ in the new company.

From my own research, I’d guess that the cornerstone investor,Ā described as a ā€œUS-based investment firm with extensive experience in automotive technologiesā€ in today’s announcement, is likely to be GM Ventures. As to the other investors, I’m less sure.

Still, Ken Kroeger confirmed that all will be revealed quite soon:Ā ā€œWithin the next 4-6 weeks we should be able to start telling people who these organisations are, how much we own, how much we will own.ā€

There are two be 2 rounds of investment plus an employee share option scheme and he’s been looking at what the market cap table will look like through those different phases. The initial round of investment will be followed by one further investment 2 years down the line.

ā€œI think we’ve shaped the investment strategy to put us in front of the sorts of organisations we would want as partners and that there isĀ  an expectation that they have the same objectives. So we’ve been looking for people that are strategically aligned in order to make sure that this goes to plan,ā€ he added.

Kroeger also confirmed that a lot of the recent selling has been by an Australian Superannuation fund (Dixons Advisory), an original investor inĀ Seeing Machines’ IPO that until recently held an 8% stake.Ā Apparently, holders had been advised to sell as the shares were converting from paper to electronic versions.

It certainly seems like an odd time to be selling out of a company making great strides in one of the hottest sectors in automotive.

As this is overhang is cleared, good news flow should propel Seeing Machines’ share price much higher over the next few months.

Incidentally, Kroeger revealed that the company, anxious to keep investors better informed, will also be launching a new investor-focused website in around 7 weeks.

The writer holds stock in Seeing Machines

Seeing Machines accelerates product development

It appears that Seeing Machines (AIM: SEE) is making good progress in bringing its world-leading, eye-tracking technology products to a variety of transport markets.

Re. today’s news that one of the world’s leading contract manufacturers has taken a 12% stake in Seeing Machines, investing A$12.8m (Ā£6.7m) for 129.7m shares at 5.2p, a 20% premium to the recent share price, finnCap analyst Lorne Daniel commented: ā€œIn our opinion, VSI, as well as providing as a source of finance, offers a low-cost development and manufacturing partner for the road-going and other devices.ā€

Following on my previous interview with Ken Kroeger, I also wanted to add some interesting snippets from last Friday’s interview that might be of interest to those investing (or thinking of investing) in the company.

Fleet

Seeing Machines has started designing the next generation fleet product (which it appears will be manufactured by VSI). It will not only be better than previous iteration (with a forward facing camera) but is expected to be about 40-45% cheaper.

In addition, Ken Kroeger revealed: ā€œWe are talking to 8 or 9 of the biggest telematics companies in the world now and getting quite a bit of interest from them.ā€

Asked whether the deal was going to be exclusive or non-exclusive, he replied: ā€œIt will be non-exclusive. I think we will have to offer some differentation; maybe it will be region by region. A lot of these companies have 400,000 – 500,000 units under management.ā€

As to the product Seeing Machines would offer them: ā€œThis next generation will remove all the things that the telematics companies have: they all have GPS, telecomms, power. So we are building more of a partner unit that will sit beside the telematics unit and only provide the services that it has to have as opposed to all the services inside. Again offering a lower cost product that will act as a companion to the telematics product.ā€

In terms of how this business model will operate, he explained: ā€œI think where this is going, we will start looking at more channel type relationships, looking at our own business model almost like software as a service where they get a piece of hardware, pretty much like a mobile phone deal where you pay something for this low cost unit, it is installed and then we are scraping more of a monthly payment – parallel to the telematics model.ā€

Rail

Not only has a third trial just started on the railway side but Seeing Machines has also submitted a tender to the Transport Authority at a big US city for a safety solution for its commuter trains.

If successful, it will garner a lot of publicity and Ken believes: ā€œIt would really launch us into that rail space.ā€

Fortunately, the improved algorithms resulting from the auto development mean that SEE’s product doesn’t need a lot of re-engineering to be used for rail, thus reducing the cost and time of deploying it. As Kroeger explained: ā€œIt re-captures the faces now very quickly. The old mining technology, our previous set of algorithms, took 15-30 seconds to find and lock onto the face, whereas it now takes less than a second. So you can move away and come back without it losing its effectiveness.ā€

Indeed, its continually improving its algorithms, as Kroeger revealed: ā€œOne of the biggest changes inside the business is that there is this new science called Machine Learning. Instead of writing software to do something you write software that can learn as you feed it new information. So we started doing that about a year and a half ago.

ā€œIt was as part of a continual push to improve those algorithms, not only for performance but also in the automotive space you have to deliver them on cheaper and cheaper platforms. You have to continually drive your prices down, so in order to do that you go to cheaper and cheaper processing. You have to keep on improving them.ā€

I had been concerned whether Seeing Machines could maintain its technological lead in this area but it seems that it has the ability to maintain this ā€˜moat’ around its business.

Again, Kroeger enthused: ā€œWhat makes us special, why it is so perfect for us is that there is no other company in the world where, literally we walk into the office in the morning and there are thousands of hours of video captured the day before of drivers. We take that information and it goes through a truthing process, where we have people looking at the video very very closely. They identify where people had a fatigue event and they can annotate that video to highlight key parts of the video. They can look at 1 minute before, 10 minutes before, 1 hour before and deep learning starts to look for tell-tale signs that are common across all users to develop a more predictive algorithm.ā€

The writer holds stock in Seeing Machines

Crimson Tide issues earnings upgrade

Aim-listed Crimson Tide, issued a very encouraging update today in which it detailed that it expects to beat profit expectations forĀ the year ending 31 December 2015.

It noted: ā€œProfit before tax will be higher than market expectations and significantly higher than for the previous year.ā€

In addition, analyst Eric Burns at house broker WH Ireland raised his profit forecast for the stock from 2.25p to 3.5p and changed it from a ā€˜Speculative Buy’ to a ā€˜Buy’.

The outperformance was due in no small part to the massive win with Tesco that I wrote about on this blog some time ago. (17 September RNS in which TescoĀ was not named).

In a detailed note out today, Burns confirmed thatĀ he expects it to start paying a dividend this year, which coupled with earnings upgrades should lead to a further re-rating of the stock.

He wote: ā€œForecast risk exists due to the phasing of new customer rollouts (with Tesco being an example of upside risk as it was rolled out faster than anticipated) but recurring revenue is building (65% est of our FY16 revenue forecast) and provided TIDE can continue to build its subscriber base there could be material upside to the shares trading on 12.9x our new FY17 EPS forecast. In our view, the introduction of a dividend in the current year (which we now forecast) will add to the shares’ attractions.ā€

The EPS for FY16 is estimated at 0.11 putting it on a forward PE of 15.8, dropping to a PE of 12.9 with EPS of 0.22p for 2017.

However, I expect upgrades for 2017 as Tesco and Nestle sign up more users to its subscription-based software as a service.

Just to reiterate, Crimson TideĀ is a fast growing, profitable, operationally-geared company with great scope for growth. It has no debt and plans to pay a dividend. What’s not to like?

I’d be very surprised if more small cap fundsĀ don’t start piling into this very soon. Indeed,Ā  given the illiquid nature of AIM stocks and theĀ fact that the shares are tightly held, this could easilyĀ double again in price within 18 months. It is currently around 3.5p to buy.

Of course this is my personal view and not a recommendation to buy. You should do your research before ever investing in a stock and never invest more than you can afford to lose.

The writer holds stock in Crimson Tide.

See and Tide float my investing boat

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, innovativeĀ andĀ well run small caps willĀ 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 outĀ  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 fairlyĀ 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 ā€˜From Tech Acorns…)

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

Every little contract helps Crimson Tide grow profits

Small capĀ Crimson Tide (AIM: TIDE) has produced good interims today, showing a rise in both profits and revenues.

For the 6 months to June 30, 2015 pre-tax profits increased 140% to £60k from £25k for the same period in 2014. Notably, this was achieved on revenue growth of only 10% with turnover of £673k (2014: £614k).

Net cash balances increased from £239k at the end of 2014 to £499k at 30 June 2015 partly assisted by asset finance from Lombard for new hand-held devices purchased for new contracts.

Gross margins are now over 90% and being operationally geared, the increasingly large contracts that are being signed for its MPRO5 software service (average term 3 years) are delivering steady and predictable profit growth.

It’s got blue chip clients across a range of industries. In the first half it won a contract for mpro5 to distribute The Evening Standard (it already does the Metro nationally). It addition, its deal with Nestle is continuing well: following initial roll-out in Australia, it has now being used in German and Brazil.

Another major contract for a major UK supermarket was signed following a long pilot during the first half.

In addition, it will be targeting opportunities in healthcare as well as food health and safety, where executive chairman Barrie Whipp sees ā€˜tremendous upsideā€.

Potential

I’ve been a fan of this company for a while, and admittedly its progress has been slow but steady – still that is the kind of company that wins the race and delivers great returns for early investors.

I’d strongly recommend that any investor looking for a combination of profitable growth that will drive share price appreciation take a good look at Crimson Tide.

Currently, its share price trades between 1.75p-2p. However, I expect it to burst through this range as soon as the market cottons on to this growth story. (In the meantime, it can be picked up fairly cheaply).

Analyst Eric Burns  at house broker WH Ireland expects full year pre-tax profits of £177k for 2015, rising to £421k in 2016 and £921k in 2017.

He commented in a note out this morning: ā€œTIDE remains a cash cow with a Ā£361k cash inflow from operating activities (against EBITDA of Ā£198k) taking cash balances to Ā£500k. A building level of recurring contracted revenue also adds weight to theinvestment case. We retain a Speculative Buy rating and 2.25p price target. ā€œ

Personally, I think that with increased marketing effort and a steadily growing reputation in the market it could well beat these targets in fairly short order.

Executive chairman Barrie Whipp isn’t given to hyperbole, quite the reverse. Thus the bullish tone of his comments accompanying these results is worth noting: ā€œThe Board and I feel that we are now seeing the benefits of the substantial gearing that we have generated. We are confident that the new channel strategy will result in greater opportunities and look forward to the future with ever increasing optimism. ā€œ

Of course, small caps are inherently risky and any investor should do their own research.Ā  Still, I’m expecting that regardless of the macroeconomic scene this will be a multiple of its current price within 2-3 years.

The writer holds shares in Crimson Tide