Category Archives: Technology

Seeing Machines revenues beat broker forecasts

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

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

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

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

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

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

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

The writer holds stock in Seeing Machines.

Seeing Machines rises in expectation of positive trading update

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

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

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


Safestocks60m11m

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

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

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

EBITDA breakeven

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

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

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

Here are my thoughts:

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

Tesla

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

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

The writer holds stock in Seeing Machines.

Seeing Machines DMS ensures Ford BlueCruise is super safe

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Last week I was privileged to be invited to test drive the 2023 Ford Mustang Mach-E, whose BlueCruise hands-off driving system uses Seeing Machines’ Driver Monitoring.

I’m no motoring journalist but I have to admit the Mach-E delivered a very impressive experience using its ‘hands-off, eyes on’ assisted driving. Fortunately, I was in the company of Robert Llewellyn of Fully Charged Show fame. Aside from being good company, he’s very knowledgeable about electric cars and absolutely loved Mach-E SuperCruise, as I’m sure he’ll soon reveal in one of his videos.

This is from the presentation Ford supplied on the day:

  • BlueCruise builds on the capabilities of Ford’s Intelligent Adaptive Cruise Control, which can automatically keep pace with traffic within legal speed limits, right down to a complete halt.
  • Hands-free mode allows drivers to drive with their hands off the steering wheel on approved Blue Zone sections of motorway, so long as they continue to keep their eyes on the road ahead – granting an additional level of comfort during long drives.
  • Before transitioning to hands-free driving, BlueCruise-equipped vehicles confirm that lane markings are visible, that the driver has their eyes on the road and that other conditions are appropriate.
  • The system uses animated cluster transitions featuring text and blue lighting cues to communicate that the feature is in hands-free mode, effective even for those with colour blindness.

Ford is rightly proud of the vehicle and its safety record. Indeed, the company boasts that during the 2 years BlueCruise has been available in the US its 200,000 users have covered 100m miles without incident.

What Ford isn’t shouting about is that it is Seeing Machines DMS that is the reason there haven’t been any incidents, as it ensures the driver’s eyes are on the road before, during and after BlueCruise is engaged.

Seeing Machines announces US$10m license deal with Collins Aerospace

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Seeing Machines has announced its much anticipated Aviation license deal with Collins Aerospace, the world’s largest Tier 1 avionics company – as predicted here back in February. 

The “exclusive” and “perpetual” license deal provides a license payment of US$10m ($3m immediately and the $7m balance over the following 2 years). Collins will also pay Seeing Machines non-recurring engineering (NRE) payments to develop the solutions, evolving into potential future royalty payments as products are released to customers.

Although details as to what exactly is covered under the license were missing in the RNS, I’m hoping to eventually get some answers to those questions from the company. Or, maybe, we’ll be treated to a video of Pat Nolan taking a bow in conversation with Paul McGlone. (Certainly, both deserve a round of applause for this deal!). 

Muted response

What has really surprised me is the muted response from brokers covering the stock. None issued an upgrade, although they were all positive on the stock. Unbelievably, at the end of a huge week, the price has barely risen in response.

I have a sneaking suspicion that the 333-plane deal mentioned in the infamous ‘Italian Job’ video will materialise fairly soon. My guess is that some analysts are keeping their powder dry for that announcement. In the meantime, I can imagine paper-thin ‘Chinese walls’ mean some salespeople are telling their very special institutional clients to: “Buy, buy, buy”.

The writer holds stock in Seeing Machines.

Peel Hunt initiates coverage of Seeing Machines

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Peel Hunt has initiated coverage of Seeing Machines with a 12p price target in a note published last week.

In the note Analyst Damindu Jayaweera argues: “With EU regulatory deadlines in mid-2024, we are starting to see a ramp-up in requests for quotes in the DMS market. Given its asset-light, flexible opex model, this should yield a Free Cash Flow (FCF) inflection. The well-funded balance sheet de-risks medium term.”

He went on to state: “We see further potential upside, based on the following potential catalysts:

  1. Signing an aviation licensing deal,
  2. Aftermarket product sales and accompanying monitoring contracts outstripping our estimates — as management is confident they will, and
  3. A shorter runway to there being more Seeing Machines-equipped cars on the road — again management sees upside beyond our royalties earnings estimates. 

We predict that the company will be FCF positive by 2026E, supported in the meantime by its cash reserves and the Magna facility.”

Later in the note (Page 10), Jayaweera provided more details on these potential catalysts. “First, signing an Aviation licensing deal would lead to a material uptick in revenues, as we have kept them immaterial in our forecasts. Second, Aftermarket product sales and accompanying monitoring contracts have the potential to outstrip our estimates: management is confident it can achieve over 10,000 unit sales in 2H23, >10% higher than our forecast. Finally, a shorter timeline to more equipped cars being on the road would generate upside, as we have been conservative with our royalty earnings assumptions given historical delays.”

For 2023 Jayaweera predicts sales of US$53.8m with FCF of minus $41m. Sales then continue rising to $118m in 2026, with FCF cash flow of $18m.

Certainly, long-suffering private investors should take heart that more and more analysts are starting to beat the drum for DMS and Seeing Machines in particular. 

The mantra we should be chanting is: “We weren’t wrong, we were just early”.

The writer holds stock in Seeing Machines.

Panmure maintains ‘BUY’ rating with 14.6p target price

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Panmure Gordon analyst Sanjay Jha has maintained his ‘BUY’ rating on Seeing Machines but lowered his price target from 16.8p to 14.6p.

In a note issued on 31st March he explained how he derived at this valuation: “We continue to use a Sum Of The Parts valuation model to value the shares, which now generates a 13% reduction in Target Price to 14.6p. The main detractors are Automotive, where we expect a lower market share by 2030 and the increase in the number of shares as the convertible loan is fully converted. This is partly offset by increased valuation for Fleet and Off-Road based on EV/sales multiples of SaaS companies.”

According to Jha’s analysis, in Automotive he now expects SEE to gain a third of the available market by 2030 as opposed to 50% previously as it seeks to avoid highly competitive tenders, especially in China. That said, he still calculates that for the year ending June 30th 2030, SEE will generate US$162.7m from Automotive – based on it having a 33.7% share of the market with 32.5m cars in production, 110.2m cumulatively, and an average royalty of US$5.

While it remains to be seen if Seeing Machines really does take less than 50% of the market – something I personally doubt – he does believe the company is fully funded to be cash positive by the second half of the 2025 financial year. 

Market perception

Interestingly, Jha begins the note by stating: “ff the shares have failed to respond to upbeat trading updates followed by a Capital Markets Day in New York, it could be due to lower appetite for growing but loss-making stocks or because there is little confidence that the available cash resources will be enough to reach the long-promised goal of positive free cashflow. We hope it is the latter because it leaves management in no doubt that it must deliver”.

Certainly, over the next 3 months I hope to see proof that management will deliver some of the long-awaited contracts in Aviation, Fleet and Automotive. Surely, some US funds must be watching in anticipation also.

The writer holds shares in Seeing Machines. 

Take your seat for the ‘Battle of the Titans’

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Ladies and Gentlemen, please take your seats. The ‘Battle of the Titans’, the heavyweight takeover of the decade, is about to begin. The winner will be the champion of interior vehicle monitoring for the next decade, opening up billions in new revenue streams in vehicles while also preventing accidents. It should also be able to help robots care for us humans long after that. 

With the news that Mobileye has been granted non-exclusivity to market SEE technology in the Aftermarket sector, it’s clear that the company (majority owned by Intel) needs SEE’s driver monitoring technology to complement its Advanced Driver Assistance Systems (ADAS). It is now able to offer a one-stop active auto safety solution to its truck and bus customer base (who according to one source currently deploy over 2m vehicles). 

I’m even willing to bet that Mobileye wanted exclusivity, but Seeing Machines preferred to play the field, as it possesses the world’s most effective driver monitoring system (DMS).

Now that the dream of fully autonomous vehicles on all our roads has been seen to be just that, a reality that is decades away, DMS has come centre stage. As Colin Barnden, analyst at Semicast, astutely realised a while back: Mobileye needed DMS, the best DMS. And it now has access to it.

With Gen 3 Guardian likely to be available from Q1 of this calendar year, it opens up the possibility of a one-stop solution for Aftermarket being available in H2 of this financial year for millions of existing Mobileye customers as well as millions more truck and bus operators in Europe who aren’t.

As the scale of the market it will capture becomes crystal clear to players (and investors) Seeing Machines’ share price should rise substantially. Explosive growth in its Aftermarket revenues will also be coupled with sizeable Auto contracts and the much-anticipated Aviation deal. Financial analysts (commonly referred to as City scribblers) will then finally start producing broker notes with spiraling upgrades, as Fund Managers pile in. Professional investors can exhibit Fear of Missing Out (FOMO) just like private investors.

What’s the timeline? It’s starting now and will be increasingly apparent with every passing month. Notably, I’m expecting a trading update on the 22nd of February with a US investor show on the 8th March. Not to mention some big contract news between now and June.

Battle of the Titans

It seems my ‘Battle of the Titans‘ prediction is slowly (oh, so slowly) coming to pass.

However, unlike a boxing contest, the battle to acquire Seeing Machines won’t be a 2-person contest with Marquis of Queensbury rules. It’s set to be a bare-knuckle bout involving strategy and multiple bidders, more akin to a contest in an episode of Alice in Borderland. As I see it, there are at least 4 main contenders:

  • Intel (majority holder in Mobileye). 
  • AMD (owner of Xilinx)
  • Qualcomm
  • Nvidia – the dark horse? 

However, lurking in the shadows are many more players who must covet the technology that Seeing Machines possesses. Some are subsidiaries of Chinese companies, such as Omnivision, but I doubt that Australia (one of the Five Eyes intelligence alliance) would allow a Chinese company to acquire such sensitive technology which could have military applications. Do the remainder have the financial muscle and nerve to outbid the above chip companies? That remains to be seen.

Once the contest really gets going, I expect one of the three ‘A’s; Apple, Alphabet and Amazon to show their hand. They have the nerve, nous and financial strength to not only outbid the above chip companies but take Seeing Machines technology to the consumer market in a huge way.

I believe that this year is finally going to be fun for holders of Seeing Machines shares. Let the contest commence.

The writer holds stock in Seeing Machines.

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.

More detail on Seeing Machines deal with Shell

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I was rather disappointed by the lack of detail in the RNS announcing the Global Framework Agreement between Shell and Seeing Machines. In response to my questions below, Shell has provided more information but confirmed that it won’t disclose the financial details of the agreement.

1)What exactly is a Global Framework Agreement in this context? Does it for instance mean that the fine detail is still to be negotiated? The intent of the Global Framework is to settle the main terms and conditions for the contract, including commercial pricing information. We are able to negotiate these terms with Seeing Machines once, which then allows any Shell entity around the world to call off that agreement.

2) Is it possible to quantify the approximate minimum annual value of the contract? This will depend on the uptake of the Global Framework by local assets, which at this time is not defined.

3) What is the length of the contract? For example, is it a 3 or 5-year contract? The Global Framework is a 5-year contract, but local assets can sign ‘call offs’ against this Global Framework that could extend past 5 years.

4) Why did you choose Seeing Machines? If you underwent competitive trials how long did they last? As a global organisation, with responsibility for the safety of employees, contractors and the general public, we have an obligation to implement evidence-based risk management strategies to manage the hazard of fatigued and drowsy driving. We tested multiple driver monitoring technologies. We recognise Seeing Machines´ Guardian System to be very promising in its ability to detect drowsiness and fatigue, and alert the driver. It took just over a year to set up, conduct and assess the results of the test.

The writer holds stock in Seeing Machines.