Expect massive re-rate of Seeing Machines by year end

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

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

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

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

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

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

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

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

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

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

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

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

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

Price

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

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

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

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

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

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

We get confirmation that Apple/Tesla is using us

An aviation license deal provides significant up front payments

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

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

The writer holds stock in Seeing Machines.

Why Seeing Machines is grossly undervalued

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

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

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

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

Discount rate to fall

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

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

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

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

Conclusion

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

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

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

The writer holds stock in Seeing Machines.

Microsaic is a curious gem

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

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

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

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

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

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

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

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

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

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

  • Cancer
  • Neurodegenerative conditions
  • Respiratory illnesses
  • Metabolic conditions

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

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

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

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

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

The writer holds stock in Microsaic Systems

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

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

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

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

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

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

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

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

The writer holds stock in Seeing Machines.

 

 

 

 

 

Has Airbus consortium won Aussie contract?

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

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.

 

Marketing masterstroke milks MOU

Seeing Machines managed to raise its share price today with a masterstroke of marketing; a fluffy RNS that while looking lovely on the surface had very little in terms of actual content.

Said creation mentioned a memorandum of understanding (MOU) but provided few details as to the ‘global semiconductor company’ it was with, and no indication as to the the likely timeframe for any eventual deal nor any mention of the likely monetary value (even a range would have done) of an eventual contract.

Call me a cynic (I’m actually a realist) but when after umpteen yearly fundraises, never-ending RFQs, imminent aviation contracts that have yet to materialise, missing train contracts and umpteen launches (e.g. BDMS) and partnerships (Mix Telematics and Progress Rail) that vanish into the ether, I feel I’ve paid the high admission fee charged by the Realist Investing Club.

To be fair, I’ve witnessed a lot of shenanigans from a wide variety of stocks over the years. Possibly it has left me bitter and twisted. Moreover, most of the instances quoted above pre-date the present senior management of Seeing Machines.

I love See’s tech (as much as I understand it – that is a joke for you tech geeks out there) but am sadly cursed by an inability to sacrifice my journalist sensibilities in the pursuit of profit. Nuts, eh?

Why MOU now?

What perplexes me is this: why mention a MOU now, yet provide no details as to the party it is with, nor indicate the likely size of the eventual contract and a date by which it is likely to be signed?

Perhaps it is super smart marketing, big tease before delivering the details. If the contract is signed soon, great: get a double share price rise from one contract. I will be happy to have my lingering fears dispelled as I watch the share price rise and count my profits. 

Yet, if this proves to be part of a well-planned, pump and fundraise operation I (and many PIs) will be sorely tempted to do an El Jefe and scream: “Bring me the head of Paul McGlone” — while berating its nomad Cenkos for allowing such an RNS to be released.

In short, I’d have preferred an RNS that announced an actual contract/license deal with a monetary value attached (even a vague value range). This would have enabled the share price to sail past 5p, particularly if it put to bed any need for a further fundraise. For the record, I’d certainly not be keen to see an eventual contract announced in a month or two alongside a fundraise, in classic AIM style.

I’m saying this publicly as I hope Seeing Machines responds by soon putting my fears to rest. I want greater transparency. I want further details of this MOU. Better still, quickly provide an RNS that gives something more solid: details of a contract worth millions.

The writer holds stock in Seeing Machines

The bad, the good and the ugly

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

Seeing Machines storms CES

All the news coming out of CES is very positive for Seeing Machines and I’m more confident than ever that it’s on target to take 75% of the global DMS market over the next few years. (Naturally, Seeing Machines itself and its broker Cenkos prefer to state a target of 30-40% publicly).

The tie-up with Qualcomm was probably the highlight of the show for me and it’s great to hear that they’re both working with a “global premium automaker”. It has been suggested it is a new OEM, if it is I assume a more detailed RNS will eventually be published.

Yet the partnership with Qualcomm, apparently at the latter’s instigation, may also be much more significant than many realise. It opens the possibility of marrying industry leading eye-tracking with chips that can go inside mobile devices and VR/AR headsets. It is potentially a huge opportunity and some speculate that a lucrative licence deal is possible for Seeing Machines. (If so, let’s hope it arrives sooner than the “imminent” Aviation licencing deal that we are still waiting for!).

Further out, robots/cars should soon be capable of displaying empathy using eye-tracking that can also interpret cognitive load/read facial gestures.

With EU safety legislation now law, and other countries set to follow Europe’s lead, the near-term future is increasingly bright for SEE. Indeed, this is a company that should be worth billions right now.

Volvo

Strangely, though, there has been silence re. Volvo. My industry contacts tell me it has finally decided who will be supplying its DMS and I’m pretty confident it will be Seeing Machines as it’s the only system that can accurately tell if a driver is incapacitated – a feature teased by Volvo in early 2019.

I expect it will first feature in the 2021/22 Volvo XC90 but Volvo are staying tight lipped as are Seeing Machines and the likely Tier 1, Bosch.

While the share price has been motoring, the next trading update (expected in a week or so) should provide further proof that fleet is set to comfortably beat full-year estimates.

This is a stock on the move and I’m increasingly confident that a huge re-rating is just a matter of weeks away.

The writer holds stock in Seeing Machines.

Seeing Machines to surprise on upside

I spoke with 2 fund managers last week about Seeing Machines. I won’t reveal their names here but what they said reinforced my opinion that the revelation that fleet is well and truly fixed, coupled with proof that breakeven is imminent (when the Aviation licensing deal is signed), will really move the share price in the very near future.

The first fund manager knew and liked Seeing Machines but, because he runs a large fund, can’t invest in companies below a £200m market cap. 

The second fund manager used to hold Seeing Machines but sold because it appeared to have too many issues and there was no sign of breakeven. 

Their views are probably replicated ten times over with other fund managers, which means that there is a large weight of money ready and willing to come into SEE once it effectively communicates the fact that fleet is fixed and breakeven is coming very soon.

Admittedly, there must also be holders who have lost patience, particularly as the company appears to be in no rush to provide detailed updates on the progress on Fleet. I’m personally tired of hearing the figure of 16,000 fleet installations given out for months on end.

Fleet

My own view, as revealed at the CMD, is that Fleet installations must be at least 20,000 right now. It’s therefore great to discover that this figure appears to be correct, since it has been published on the website of Seeing Machines’ Latin American distributor in Chile. It has on its homepage the words: “Guardian salva vidas en mas de 30 paises del mundo monitoreando mas de 20.000 vehiculos en tiempo real.” Translated into english it means: “Guardian saves lives in more than 30 countries in the world by monitoring more than 20,000 vehicles in real time.”

Screen Shot 2019-11-21 at 13.58.00

Given this is the case, why isn’t Seeing Machines communicating this to investors and the wider market? Moreover, why isn’t Cenkos upgrading its projections?

Instead, the market is still being provided with the laughable estimate from Cenkos that fleet will only deliver revenue of A$20.9m for the full year 2020, based on uber conservative numbers that are even below Seeing Machines unrealistically low estimate of 27k-30k installations.

This is what Cenkos wrote in its note of 23 September, 2019 “….our Fleet connection forecasts are based on connections below the guidance of 27k-30k”.

One might reasonably ask for these projections to be updated. Still the questions remains, why haven’t they been updated? Okay, Cenkos is the house broker and is pretty dependent on Seeing Machines for a steer, so why haven’t they had it?

Reading an old blog post on Safestocks, I was reminded how management priorities differ from those of private investors.

There is an additional reason, I believe. Naturally, a prudent new CEO wants to have something up their sleeve to impress the market. Let’s not forget that Seeing Machines has disappointed investors many times over the past 5 years. The onus really is on him to deliver and keep on delivering.

The good news is that I think that is what is in store for investors in Seeing Machines. In short I expect fleet upgrades by the interims (at the latest) and then again for the finals.  Forget estimates of 27k-30k fleet units for this financial year, backed by uber conservative figures from Cenkos. The actual figures for installations should be nearer the 35k mark, which will blow away the existing estimates.

In addition, I expect such upgrades to be preceded by an RNS announcing an aviation licensing deal with with L3 Harris and/or CAE, that provides an upfront payment and ongoing royalties. If it lives up to the billing from Paul McGlone in a recent interview I expect it to bring forward breakeven from the end of calendar year 2021 to June 2020 this financial year.

That news, when eventually delivered, will cause a huge re-rating as IIs, who’ve lost interest or sat on the sidelines, jump into this stock.

For long suffering investors in Seeing Machines vindication is close at hand.

The writer holds stock in Seeing Machines.