SEE: when will you deliver for investors?

I’ve tried being subtle, not that it suits me. Still the question now needs to be asked, when will Seeing Machines start delivering, instead of taking from its investors?

I’m concerned that the management of Seeing Machines has long forgotten that it runs the company not for itself but for its investors. This was brought home to me by a quick look at the latest Annual Report.

A case in point is the huge payment that Ex-CEO Ken Kroeger received last year: A$654K (£347K), revealed on page 47. That’s great pay considering the share price plummeted 75%. Admittedly, AIM CEOs are well known for paying themselves well regardless of performance, but (as a shareholder) I find this instance especially outrageous.

Nor does it end there, as staff recently received huge share bonuses for work over the same period. Clearly, management aren’t sharing the pain with us long-term investors.

I’d hoped that new CEO Paul McGlone would chart a new path but I don’t see it yet. Here are 3 issues I personally have:

  • There still seems to be no discernible PR strategy in place. For example, SEE has a fancy US PR firm that don’t seem able to generate mass coverage for what is an easy sell to editors; car tech that saves lives. As a case in point, when I tried to get some simple answers to some obvious questions about their RNS on Alaska Airlines recently they failed to deliver. Am I being singled out for special treatment or are all journalists treated so poorly?
  • Lack of transparency for shares awards to the CEO; why have no targets been set and communicated via RNS? This is how SEE do it. This is how another AIM company, Parity did it. Take a look at page 17 of Seeing Machines’ annual report to learn about a remuneration policy with no policy.
  • Lack of disclosure re. relationships with partners. For example, what is going on with Mix Telematics and why aren’t we being told? It’s been years since a contract was signed and we still have yet to see it bear any fruit. Hiding behind NDAs just looks weak.

I hope next week at the Capital Markets Day the management under new CEO Paul McGlone will adjust course and address longstanding investor concerns about the lack of transparency and poor news flow. After all, investing should work for the many, not the few.

This isn’t meant to knock the staff of Seeing Machines or its technology. I have the highest respect for the brilliant technology coming out of this company and the dedication of the majority of its staff to delivering life-saving technology to the masses. I just want more transparency and better execution from management.

The writer holds stock in Seeing Machines.

DMS requirement to become law in EU

I can now confirm that the new European Union ‘General Safety Regulation’ rules are set to enter into force in January/February 2020, then start applying 30 months later.

The process, I’ve been told by an EU spokesperson, is as follows:

  1. The Council of the EU decides to adopt by accepting the European Parliament’s (EP) amendments to the Commission Proposal (8th November)
  2. Then the act is signed by the President of the EP and the General Secretary of the Council in the week beginning 25th November.
  3. Within a month it gets published in the Official Journal of the EU.  The act in this case provides that it enters into force (obtains legal existence) 20 days after publication in the OJ.

The act also provides for a 30-month transitional period for most provisions, which means it will only start to apply 30 months after entry into force.

Note: the exact date(s) will be known only once the act has been published in the OJ as all deadlines depend on that date.

2020 the year of DMS

Enough of EU procedures: the good news is that from 2020 there will be a legal requirement for all completely new car models to have systems to monitor drivers for drowsiness and also distraction by June 2022, while even refreshed models will have to comply by 2024.

Euro NCAP, which has traditionally set car safety standards well beyond legislative requirements, is pushing equally hard for advanced driver monitoring. It is developing test and assessment protocols that will be introduced at the beginning of 2021. Moreover, requirements to measure driver distraction and fatigue/drowsiness will be built into Euro NCAP’s 5 star safety ratings from 2022.

Thatcham Research, is also working with Euro NCAP to develop testing protocols to ensure future cars have effective driver monitoring systems.

While these regulations and standards are intended to be ‘technology neutral’, it is now obvious that the only technology that can effectively meet these requirements is camera-based DMS.

This is very positive news for Seeing Machines, in particular, and I’m expecting some big auto contracts to be announced soon.

The writer still holds SEE stock!

10 questions to Seeing Machines

I’m expecting Seeing Machines to provide positive news and an upgrade for its 2020 financial year when it releases its full year results for 2019 on 23rd September.

However, this is no time for complacency, especially given the errors of the past under the previous management. In particular, questions have been raised about its operational costs and whether it has sufficient cashflow to avoid another raise. I hope we’ve entered a new chapter but we’ll soon know.

Unfortunately, for a few months now Seeing Machines has refused to engage with me and answer my questions. Fine.

However, it would be a shame if hard questions aren’t asked and answered by management when these results come out. To aid that transparency, here are 10 that I hope investors will be asking when the results are published.

1. Analyst Sanjay Jha at Panmure Gordon has previously stated, in a note dated 5th June, 2019 that Seeing Machines isn’t funded to breakeven. “We continue to believe the funds raised in April are not going to last 18 months as the company continues to pursue opportunities in 4 different sectors (Automotive, Fleet, Aviation, Off-road).” When do you now anticipate breakeven and will you need to raise again before then?

2. Regarding operational costs: how many people are now employed by SEE? Did operational costs increase in 2019 and by how much? How much are operational costs planned to increase in the current financial year (2020)?

3. Are you actively seeking to renegotiate the Rail contract with Progress Rail? If so, when do you expect it will be concluded?

4. Given you don’t have the cash to develop automotive, are you actively seeking a CAT-style licence deal for aviation? Do you expect it will be concluded before the calendar year end?

5. Is the monthly growth in fleet revenues sufficient to avoid any further fundraise? Can you quantify this growth?

6. Why has the relationship with Mix Telematics failed to produce much revenue? Is this likely to change in this financial year? How and why?

7. What is the number of Guardian installations you  expect to have in place by June 30, 2020. What is the monthly installation rate? Can you confirm that these are generating cash immediately? What’s the lag?

8. Re. Auto, are you now gunning for the low, mid and high end auto market?

9. Is it the case that if a budget OEM needs a cheap DMS you can provide a DMS chip with less functionality at a reduced price?

10. Are you actively working with Japanese OEMs. Have they finalised exactly how they want DMS to work? (Eg. Integrated into ADAS).

I’m far from infallible and I’m sure investors may have additional questions. Good luck to all holders!

 

The writer holds stock in Seeing Machines.

 

Webcast for Seeing Machines results?

I’d like to request that Seeing Machines hold a live webcast for investors when it announces its results in late September (no firm date has yet been communicated). This would go some way to improving the transparency of its communications to private investors who don’t have the luxury of regular one-to-one meetings with management.

With its headquarters in Canberra most shareholders aren’t in position to attend results presentations/AGMs in person and it would provide demonstrable proof that the new management is committed to clear and timely communication to all.

Other AIM-listed companies do this already. Veoneer, Aptiv and others do it also and Seeing Machines should walk the walk on investor communications.

Never mind spending a fortune on engaging a US PR outfit, there are simple ways to engage existing investors and grow your global profile among investors.

Regardless of the good news that is coming (yes, no rush Seeing Machines we can wait for the official announcements), private investors deserve a clear and transparent communications strategy, not just videos interviews put out on an obscure website where only easy questions are asked (albeit from a skilled interviewer).

I don’t have the influence to make this happen but the investors reading this do. Agitate for it and make it happen. Good luck.

The writer holds stock in Seeing Machines.

 

 

 

 

 

 

Volvo XC90: another win for SEE

The evidence is stacking up that Seeing Machines has won Volvo in the teeth of opposition from its Swedish rival Smart Eye.

Read this article on the Volvo XC90 and note the way it describes how the DMS system will work. Congrats to Nick DiFiiore and his team on this one. All we need now is the RNS.

I believe the delay in announcing auto OEM contract news is due to their being re-scoped and enlarged by car manufacturers in the light of EU legislation that will mandate DMS in all new type cars from 2022.

Of course, fund managers have been getting the inside track on developments this week so I am optimistic we will get some big buys.

Still, rather than a soft-focus video, private investors also deserve to meet the management. Hey, SEE, how about organising a webinar and answering some tough questions from people who’ve invested their hard earned money over a number of years? Or better still, call another meeting in London.

Certainly, in his most recent interview the new CEO, Paul McGlone, seemed very confident. He can certainly talk the talk and it is my hope he will also walk the walk over the next 6 months. Time will tell.

The writer holds shares in Seeing Machines.

Silver lining in a cloud of investor misery?

Following today’s news that Seeing Machines is having a deeply discounted  conditional placing and subscription to raise £27.5m, the management of the company seems to have lost both the goodwill and trust of many private investors. 

Indeed, the fact SEE couldn’t get even get a placing with existing institutional investors away at 5p tells you a lot.

It’s quite frankly shocking that the company had to offer shares at 3p in order to raise cash and follows a long series of fleet and train related mishaps that Chris Grayling would be proud of.

The only silver lining I can see is that with the expected OEM wins still to be announced it becomes a sitting duck for an opportunistic bid. My sources tell me that last year, after numerous ‘discussions’, it came close to being snapped up by Bosch for around 17p. Well, I dare say, it is still available at a knock-down price.

Anyone want a to buy a company with great tech but poor management? 10p? Anyone? 7.5p?

UPDATE

For those investors despairing tonight, I’ve some hope. Ironically it comes from house broker Cenkos who put out a note today. Analyst Jean-Marc Bunce clearly cares about his reputation and though he lowered the price target to 9p, Bunce can’t help but admit on page 15:

“Strategic value is significant – 39p at 8% discount rate

To demonstrate the significant value in the increasingly visible future cash flows from Seeing Machines’ automotive license fees, we note that a large organisation with a market average Beta of 1 would have an equity cost of capital of 8%. At an 8% cost of capital our valuation for Seeing Machines rises to 39p and we note the weighted average cost of capital for a large corporate would likely be even lower through debt financing.”

In fact, the more times I read this note the more I get the sense that it is setting out a case for SEE being sold at a particular price. We’ll see.

The writer holds stock in SEE.

Is it time to React?

React Group is a tiny AIM-listed company that has a chequered history and recently decided to concentrate on specialist cleaning. It is also a sub penny stock. So far, so bad.

The good news is that star fund manager David Newton has a chunky 15.74% holding and the company’s management has been strengthened with the addition of a Non-Executive Director Michael Joyce, former CFO at InterQuest.

Joyce and his wife have recently bought stock in the company (management of SEE, please note) which has helped spark this week’s increase in the share price.

Mark Braund has also been brought in as an operational and strategic advisor. He is a former CEO of InterQuest and also ex-CEO of Redstone Connect.

I briefly held this stock about 3 years ago when Adam Reynolds (the cash shell king) was a holder. He has since moved on and I feel that with a clearer strategy the company is now gearing up for a period of accelerated growth.

It made a loss for the year ended 30 September of £1.93m but the net cash outflow from operations was far less at £625k, with turnover up 25% at £3.3m. If the business continues on its current growth trajectory it could easily multi-bag from here.

At this stage it has be regarded as a fairly speculative investment and is certainly not one to sink your pension pot into. Yet, it is certainly worthy of further investigation.

At the time of writing its share price was 0.27p.

The writer holds stock in React.

Seeing Machines wins strategic FCA contract estimated at US$200m

Seeing Machines has won the contract to supply US carmaker Fiat Chrysler (FCA) with its Fovio chip Driver Monitoring System, as predicted here months ago.

Ostensibly it is a US$6m contract (for Jeep or Ram, I believe) but as we all know the value is likely to end up far higher as DMS is swiftly rolled out across all its various car marques and models.

My estimate for the eventual worth of this deal is nearer to the hundreds of millions of US dollars. FCA produces 4m cars a year. Within 3 years I expect the Fovio chip to be in approximately 50% of them, say 2m cars. At US$20 a pop (volume discount from US$30) that is at least $40m a year. EVERY YEAR from 2022!

As the lifetime of a model is 5 years, my belief is that this strategic contract should end up being worth at least US$200m.

Clearly FCA couldn’t afford to let Ford with its F-150 pick-up outcompete in the premium DMS arena. They just had to have it.

I feel a twinge of sympathy for Smart Eye who at one stage hoped to win FCA. Indeed, as i believe the Tier 1 is Aptiv Seeing Machines are rubbing salt into its wounds — it is the equivalent of your partner running off with your worst enemy.

Unfortunately, Smart Eye don’t have an automotive grade chip, although they are trying to develop one. Unfortunately for them, Seeing Machines has already passed the finishing line where the US premium auto OEMs are concerned. After all it has now bagged FCA, Ford and GM.

In addition the next race has nearly been won in Europe where it will win VW to add to BMW and Mercedes and I don’t expect the result to be any different in Japan (Toyota and Honda are coming I believe).

This latest win brings an eventual bid for Seeing Machines much, much closer. So far as DMS is concerned SEE really is the next Mobileye. Indeed, I imagine the calculations I’ve roughed out will be replicated by many chip companies.

The writer holds stock in Seeing Machines.

Cadillac extension gives Seeing Machines US$10m boost

News from Motor Authority that Cadillac is rolling out Super Cruise across its entire range of Cadillacs from the end of 2020 is very positive for Seeing Machines, as the system incorporates its Driver Monitoring System (DMS).

Cadillac

Global sales for Cadillac were 356,00 in 2017 and at approximately US$10 a car (only software being used not the chip, apparently), Seeing Machines can look forward to initial revenues with milestone payments of up to US$10m. Thereafter, annually it is likely to be less unless GM moves to a Gen 2 chip or extends the DMS to its entire range of cars.

The Super Cruise system, which enables safe hands-free semi-autonomous driving, was only this week voted the 2019 Technology of the year by Autoblog.

This extension across the entire Cadillac range is certainly materially important, so I’d expect a full RNS at some point. Personally, I think its the first stage in what eventually will be a roll-out across all GM cars. For, just as every car now has seat-belts, DMS is going to be mandated as an essential system around the world to prevent accidents from driver fatigue and inattention.

I’m also expecting confirmation, whether from news articles or RNS announcements, of several other huge auto OEM wins over the next few months.

Fleet

It’s also very encouraging to learn that First Bus, one of the UK’s leading bus operators, to deploy Guardian to numerous bus services across the UK & Ireland.

In the blog post on the Seeing Machines website (why not via an RNS?) the company revealed: “Following an extended evaluation of at the Reading RailAir coach service, running from Reading train station to Heathrow Airport, First Bus has decided to rollout the technology further across their fleet.

“Phase one of the agreement is the fit-out of Guardian to a number of services in the UK and Ireland and has begun with Glasgow Buchanan Street Bus Station to Glasgow Airport. The installation across the region will comprise a mix of retrofit to existing coaches and new builds with Guardian pre-installed. This phase is expected to cover more than 70 buses and coaches and to be completed in early 2019.”

Broker notes

I look forward to Cenkos, and yes even Canaccord Genuity, soon producing updated estimates for this year and well beyond. This is because I believe projected revenue growth over the next 3 years, led by auto, will amaze many. Moreover, contracted revenues should grow exponentially this year, led by further deals with auto manufacturers who are keen to incorporate Seeing Machines Fovio driver monitoring technology into their cars.

The writer holds stock in Seeing Machines.