Seeing Machines set to become cash flow positive in FY2025

In an exclusive interview with Safestocks, Stifel technology analyst Peter McNally has confirmed that his view is that Seeing Machines does not require a fundraise and is set to become cashflow positive, on a monthly basis, in the 2025 financial year (FY2025).

Peter McNally, took over coverage of Seeing Machines at Stifel (house analyst) five months ago but he has known the company for a number of years. I think his insights will prove invaluable. Iā€™m presenting my questions and Peter McNally’s answers in a Q&A format to preserve the integrity of his answers.

Q&A with Peter McNally

Q. Regarding the H1 2024 Trading Update & Quarterly KPIs, what was your view?

Firstly, the KPIs look good to me. They are the only company out there that is actually doing any normal KPIs and providing transparency. The cars on the road number at 1.5m is a great milestone to reach. We know it is just the beginning. The numbers themselves look very healthy, weā€™re not changing estimates or anything like that.

What we saw was that everything is in line. We wondered if the headline number of 5% growth was going to dissuade any folks. We tried to call out on our note that they are not making excuses for themselves by stating that the underlying growth is 28%, if you take out that Magna exclusivity licence. It is actually quite valid because that 28% growth is more around royalties, boxes, monitored connections and that license really is kind of a one-off.

That was 28% growth in the first half. Based on our estimates, to hit the full year numbers they have to move from US$26.5m in the first half to US$40m in the second half. That sounds like a big number but for them it is actually not. Typically, the company revenues are 40% first half weighted and 60% second half weighted ā€” to get to our number assumes 61% weighting in the second half. That is pretty much in line with typical seasonality. You also have to keep in mind that you have some sales that were done of the Gen 3 Guardian product on the back of CES and, as regulatory deadlines approach, there will be demand for more services.Ā 

Their existing launches are still ramping, so we think that is good news. If you were to do it on a like-for-like basis, it assumes the second half grows at 20% and they just did 28% in the first half. So weā€™re pretty comfortable with it.

Regarding the cash position, weā€™re also comfortable with that given that we expect a $14m increase in revenues in the second half while the costs are virtually the same. There is about $1m increase between this yearā€™s costs and last yearā€™s costs, and I am talking cash cost not just income statement costs. 

The cash costs for this business in FY2024 are, in my estimates, only about $1m more  than they are in 2023 but revenue rises by $7.9m. The company hasnā€™t cut its cost structure by much, itā€™s just that the revenues are coming through. That is what reduces the cash burn down to a very low level, along with $5.5m of receivables and inventory unwind in the second half. They are saying somewhere between $5-6m.

Q. So there is no reason for a raise this calendar year?

A. There is no reason for a raise at all, so far as I can see. Unless they wanted to. They are on track to be profitable next year. Itā€™s not a shoo in, theyā€™ve certainly got their work cut out for them. It all looks like itā€™s going to plan, so weā€™re not worried.

Q. When exactly do you expect Seeing Machines to be cash flow positive?

A. Our estimates assume that on an operational basis in FY2025 they will do operating cash flow of just over $21m but we think they will spend about that amount on capitalisation and hardware as well. We have a small net cash outflow of about US$1m for FY2025. However, on a monthly run-rate basis, they will become cash flow positive during fiscal 2025, but we havenā€™t put out the exact month.

Q. Is there a likelihood that they might want to make an acquisition? For instance, to add more features to their auto offering?

A. I would say that at the moment they are 100% focused on the business that they have at hand. That doesnā€™t mean that they are not opportunistic. If something were to come up Iā€™m sure they would have a look at it. But I donā€™t think acquisitions are on the radar screen at the moment. Maybe they might be, further down the line. Could it be some form of geographical expansion, I think thatā€™s possible. 

In terms of features they are in the driving seat. They are the one who is developing the features in the marketplace. I donā€™t think they need to buy in any features, I think they can develop them themselves. If thereā€™s a short cut to development time thatā€™s always a consideration, but I donā€™t think thatā€™s in their mind at the moment.

Q. In terms of a US listing I hear a lot of chatter. However, if they do decide to go down that path isnā€™t it much further down the line, say 18 months to 2 years away?

A. There are many people who have suggested a US listing at some stage. Will they do it? I donā€™t know. I guess they could consider it but I think they have a lot of ground to cover before they would consider something like that. I think they are focused on making this business work right now rather than another listing.

Two years from now they might be in a very comfortable position, where the royalties are just rolling in. If they were to consider a US listing I think it is much further down the line.

The writer holds shares in Seeing Machines.

Lexus DMS found wanting by Euro NCAP

Toyotaā€™s luxury brand Lexus recently had its DMS tested by Euro NCAP and got a miserable 0.3 out of 2 points. The vehicle in question was the 2023 Lexus RZ.Ā 

It must have come as a huge shock to Toyota, which is struggling like Tesla to deal with the influx of quality Chinese cars. I understand that Woven (not Smart Eye) was the supplier.

Itā€™s actually a huge positive for Seeing Machines and Iā€™m feeling pretty confident that Toyota will do the sensible thing and find itself a supplier that can deliver maximum points from the Euro Cap DMS test. I certainly donā€™t expect it to choose Smart Eye, by the way.

Iā€™m also hearing that Volvo may be experiencing buyerā€™s remorse for its choice of DMS. Letā€™s wait and see what happens there.

While the share price of Seeing Machines is an annoyance, Iā€™m increasingly confident that the couple of auto wins predicted by Paul McGlone will come to fruition by the end of the first quarter of 2024. He delivered on Gen 3 Guardian and I can only reiterate my belief that all the auto contract delays have been due to the OEMs.

The writer holds stock in Seeing Machines.

5 predictions for 2024

Iā€™ve started to celebrate New Year early in solidarity with the people of Samoa (any excuse will do). Therefore, having imbibed a lot of the amber nectar (Irish Whiskey in my case), Iā€™m fearlessly making 5 predictions for 2024.

  1. Donald Trump becomes US President as many in the US start to realise that its global military hegemony is coming to an end. Ex-President Bidenā€™s handlers do the decent thing and put him into a retirement home.
  2. Sir Keir Starmer becomes head of a minority Labour Government. He is then forced to resign over a scandal involving his relationship with Israeli lobbyists and links to the ā€˜deep stateā€™.
  3. As Ukraine continues to lose in NATOā€™s proxy war against Russia, President Zelensky is assassinated by his own security services and Ukraine sues for peace with President Putin.
  4. Israeli genocide in Gaza is stopped not by the US but by a failed invasion of Lebanon. Hezbollah shows the world that it is a formidable fighting force. The world starts to realise that a one-state solution, creating a democratic entity that offers full human rights to both Israelis and Palestinians is the future for both Israelis and Palestinians.
  5. The future of autonomous driving is postponed for another decade and driver assistance using Artificial Intelligence becomes the hottest part of the tech sector. Seeing Machines is bought for 76.5p following a bidding war.

It only remains to wish all of you a happy, healthy and prosperous New Year!

Peel Hunt note questions Smart Eye and Seeing Machines comparison

Peet Hunt Analyst Oliver Tipping has issued a broker note on Seeing Machines that questions the contract size for Smart Eyeā€™s recent US$150m win, while stating that Seeing Machines puts out minimum values for its wins.Ā This is a point I made recently but, coming from Peel Hunt, it confirms it for any doubters out there.

Still, the most important point made in the note was that aside from its most recent $30m win, there are many more auto contracts expected to be announced by Seeing Machines early in the New Year. Tipping wrote: “This win was the first of the major European contracts Seeing Machines was hoping to win before the end of the year, thus its pipeline remains robust as it looks to deliver more wins in early 2024.”

The numbers game

Tipping also confirmed that Seeing Machines is very conservative regarding its contract values: “ItĀ  isĀ  importantĀ  toĀ  rememberĀ  thatĀ  the contract value SeeingĀ  Machines reports is conservativelyĀ  basedĀ  offĀ  minimumĀ  productionĀ  volumes,Ā  which areĀ  likelyĀ  toĀ  beĀ  farĀ  lowerĀ  thanĀ  theĀ  actualĀ  productionĀ  valuesĀ  forĀ  these contracts.”

Then he went on to caution investors. ā€œIt is vital for investors to be aware of theĀ  differencesĀ  betweenĀ  theĀ  numbersĀ  thrownĀ  around by differentĀ  companiesĀ  in the DMS market. For example, it would be easy to be distracted by the SEK 1.55bn (US$150m) figure quoted in Smart Eyeā€™s most recent win (which we believe to be General Motors). However, we are unclear how this figure has been calculated as Smart EyeĀ  doesĀ  notĀ  disclose itsĀ  methodĀ  for calculating theĀ  valueĀ  ofĀ  theseĀ  contacts. In addition, this contract was as a tier 1 supplier to the OEM. Given it currently acts as a tier 2 supplier to this OEM, its CEO stated volume as a tier 1 supplier is only likely to ramp in 2029, into the 2030s (not from 2027 as mentioned in the RNS) andĀ  thusĀ  hasĀ  noĀ  impactĀ  onĀ  cashĀ  generationĀ  inĀ  theĀ  shortĀ  toĀ  mediumĀ  term.ā€Ā 

Tipping went on to stress that the key indicator of success is cars on the road, stating: “Until Smart Eye starts reporting this number, the tangibility and true worth of the contract wins remains unclear.”

Still, I’m sure the figures put out by Smart Eye will help it immensely in any future fundraising efforts.

Aside from dealing a knock-out blow to those who think Smart Eye is the global leader in driver and occupant monitoring, the note maintained its ā€˜Buyā€™ stance on Seeing Machines and its 12p price target.Ā 

Importantly, it also confirmed that Seeing Machines has, as promised by CFO Martin Ives, started to cut its expenditure. Analyst Oliver Tipping wrote: ā€œManagement confirmed that it has executed the first of its cost-cutting measures aimed at bringing the cash burn down to break-even by FY25 (-$3m a month exit run rate from FY23). We await further details in  the  1H24  update,  but  this  will  be  crucial  in  underpinning  the  long-term viability of the business. For now, the company has a strong balance sheet, which should see it to its targeted break-even date.ā€

Auto contracts worth $1bn

With its latest win Seeing Machines now has auto contracts officially worth US$366m. However, as previously stated, given Seeing Machines propensity to cite minimum values that turn out to be much larger, I believe the real worth of those contracts is approximately 3 times that. Yes, $1bn! 

Why is that significant? Well $1bn in auto contracts surely makes it a very desirable candidate for a takeover in the very near future, particularly as it is soon to hit break-even.

With the move to assisted driving taking over from dreams of full autonomy and legislation coming into effect this year in Europe that mandates driver monitoring, the future is looking very bright for Seeing Machines.

The writer holds stock in Seeing Machines.

History lessons: the Palestinians will defeat Israeli colonialism

History is full of lessons and one of them is that nation states can make grave errors, especially when led by ideologically driven leaders who lack morality, integrity and foresight.

Of course, Nazi Germany is the modern benchmark for this. Yes, Germany would have come to dominate Europe economically, but where exactly did the Holocaust spring from? Hitler and the Nazis did terrible and unnecessary things to the Jews, Gypsies and Russian prisoners of war. Shockingly, they were elected democratically and supported by the bulk of the German people.

How the wheel of history turns and surprises us. Now in Israel we have a Jewish state that has been brutally suppressing an ethnic group, the Palestinians, for many decades. The Israelis have been operating an Apartheid system to keep down the Palestinian population that it feels will demographically overwhelm it. It is reminiscent of South Africaā€™s Apartheid system but is arguably even more brutal. For, as Ronnie Kasrils pointed out, the Israeli states colonial settlers aim to remove the indigenous Palestinians and turn the country into a purely Jewish (racial) state.[1] 

If Israel has a leader with the vision of FW de Klerk it might still change course by voluntarily dismantling its Apartheid system. It could then work with the Palestinians (including Hamas) to help build a democratic one-state solution, as proposed by the late Edward Said. If the Afrikaners of South Africa could do it, why not the Israelis?

Genocide

Yet events have taken a far darker turn with the Israelis going down the path of genocide against the Palestinians. Indeed, renowned Jewish scholars of the Holocaust have even highlighted the fact that Israelā€™s actions constitute genocide. And yet the US funds and arms its ally, in part down to the power of the pro-Israel lobby in the US. That isn’t some racist conspiracy theory, as Professor John Mearsheimer has previously explained in his book, The Israel Lobby and US Foreign Policy. I’d urge you to watch his videos.

The bulk of the mainstream media has swallowed the Israeli governmentā€™s lies about the events of October 7th and its causes, much as it did about the Ukraine war, in order to manipulate public opinion in support of Israel. Israel has also proven itself to be an effective propagandist, hiding the fact that it killed some of its own people in it is disproportionate response to the Hamas attack that day. 

In addition, there were no Israeli babies baked in ovens by Hamas, 40 Israeli babies did not have their heads chopped off, yet the media in Britain and elsewhere covered these stories as if they were true. Sadly, these lies were used to fuel the genocidal hatred of the Israelis (and their supporters worldwide) towards the Palestinians. Liberation has outlined some of this in an excellent article.

Ironically, they provided justification for countless war crimes by the Israeli military against the Palestinians. The so-called ‘Israel has the right to defend itself’ response much beloved by the British Prime Minister and his erstwhile ally Sir Keir Starmer to normalise state terrorism against a largely defenceless population.

The approach of the media was in stark contrast to the way the Ukraine war was treated. RT still isnā€™t allowed to be broadcast in the UK but Israeli propaganda is given free reign even while the IDF continues to torture hundreds of thousands of children, having murdered approximately 10,000. God only knows how these children have been damaged by the events of the past few months.

Despite the best efforts of the mainstream media, ranging from The Guardian to the BBC the truth is now, slowly coming out. However, even on the BBC today (December 14th, 2023) a reputable BBC journalist, Jeremy Bowen, repeated Israeli assertions that the Israeli civilians who died on October 7th were all killed by Hamas. In reality, it appears many were killed by the IDFs indiscriminate attacks against the houses in which they and the Hamas fighters were in.

The false narrative about the causes and the events of October 7th has been used to manipulate public opinion both inside and outside Israel. The aim appears to be to justify ethnic cleansing and the removal of the Palestinians from Israel.

Hamas is cited as the enemy but the comments of the many in the Israeli government as well as Israelis make it clear that in reality no distinction is made between Hamas and Palestinian civilians. 

The fact that Israel itself helped create Hamas to weaken the PLO is conveniently ignored. As is the fact that Hamas won elections back in 2006 and is essentially no more a terrorist organisation than was Nelson Mandelaā€™s ANC fighting South African Apartheid. 

Greater Israel

The Zionist aim of a ā€˜Greater Israelā€™ that requires the removal of all indigenous Palestinians is immoral. Similarly, is it fair that in Israel an American Jewish settler has more rights than a native Palestinian?

The brutality used to enforce this genocidal project does in some respects have echoes of Nazi Germany. ā€˜Ein Volkā€™ (One people – the Jews) need more ā€˜Lebensraumā€™ (room to live) and a ā€˜Final  Solutionā€™ must be deployed to deal with the indigenous Palestinian population who are ā€˜Untermenschā€™, racially inferior. If it wasn’t for social media and 24/7 reporting of these Gaza genocide who knows how far Netanayahu might go? One of his fascist ministers even suggested nuking Gaza! (He wasn’t sacked).

The crazy thing is youā€™d assume a people who were on the receiving end of The Holocaust would be sensitive about inflicting genocide on another people. Sadly, that isnā€™t how humans appear to operate. And history, lest we forget, is created by the victors.

Even a cursory knowledge of history (which doubtless Iā€™ll be accused of possessing) appears to show that genocide has happened time and time again. If the people were wiped out successfully the victors were able to bury those skeletons in the cupboard of history. Ethnic Russians wiped out native peoples in their expansion east. The US pretty much did the same to the Native Americans, the Spanish to the indigenous Indians in the Americas , the British to the Australian Aborigines, the Belgians to the Congoleseā€¦well, you get the idea. Had the Germans won WW2, I doubt youā€™d even know about the Holocaust.

The endgame

Given the bloodthirsty intransigence of the current regime in Israel, only the US has the ability to prevent a much wider war in the Middle East, by making Israel stop the genocide in Gaza and its ethnic cleansing. It must then facilitate a genuinely even-handed political settlement between the Palestinians and Israelis while there is still time. Eventually, Israel wonā€™t be in any position to choose how to proceed as the hatred its actions have created will eventually lead to the destruction of its Apartheid state. Better to grasp the nettle and make peace, while the US is still backing it.

Iā€™m personally of the opinion that a single democratic state is the best solution for all concerned. Yes, it sounds idealistic but in Ireland and South Africa things changed for the better despite much hatred and bloodshed over centuries. If the British could make peace with the Irish and South Africa could end Apartheid, nothing is impossible with bravery and goodwill. I believe both Israelis and Palestinians possess those qualities – even if their leaders have yet to measure up to Nelson Mandela and FW de Klerk.

In the last resort, Israel canā€™t stand against the world without US backing, and that backing wonā€™t last forever. Nor can US promises necessarily be relied upon. Just ask Zelensky, who stupidly bet all his chips on the US. US attention will eventually turn to China as it attempts to maintain the mantle of global hegemon. Where will that leave Israel in the future if it doesnā€™t make a comprehensive peace settlement soon?

The lesson of history is that an effective resistance will eventually defeat colonialism.

[1] Ilan Pappeā€˜ (ed.), Israel and South Africa: The Many Faces of Apartheid

US$30m contract for Seeing Machines

Great news from Seeing Machines today, as it announced a US$30m auto contract, which I think may well be PSA (part of Stellantis). However, others think it is likely to be Volvo (owned by Geely) moving from Smart Eye or even Jaguar, (owned by Tata).

If it is PSA, I look forward to state-of-the-art driver monitoring being launched in Peugeot, Citroen, DS, Opel and Vauxhall cars.

On the face of it the deal is much smaller than Smart Eye’s US$150m but, given that Seeing Machines tends to be ultra conservative, if you multiply the Seeing Machines minimum value by three and cut the Smart Eye one in half I think you’ll end up with a more realistic estimate of the value of both deals; US$90m versus US$75m.

Importantly, the announcement has confirmed that SEE management does deliver on its promises. Moreover, with the huge Consumer Electronics Show (CES) only 3 weeks away (9-13 January, 2024), I expect a lot more news to push the share price up considerably over the next month. We’ll see, I guess.

The writer holds stock in Seeing Machines.

Donā€™t despair with SEE: do more research

I must admit to having been a bit distracted by the ongoing genocide in Gaza over the past couple of months. Still, I felt it important to provide my views on the recent Kr1.55bn (US$150m) Smart Eye contract, as I know a lot of investors are rightly concerned by lack of news flow on the automotive front from Seeing Machines (AIM: SEE) – aside from a relatively small (US$15m) contract win in early November.

I do think the recent Smart Eye contract is with General Motors, as that has been the conclusion of 3 sources better placed than me to know about it (Colin Barnden, the RedEye analyst and my private source). Am I particularly concerned? Quite frankly, no. My guess is that, and it is only my guess, the contract is dual sourcing at bargain basement levels. As to the size of the contract, well SmartEye normally pump out the biggest figure they can so the lifetime value given is likely an absolute maximum.

Still, it is big positive for SEYE and I wish them well. The market is big enough for both SEE and SEYE and things are clearly hotting up in this space. 

As to SmartEye, being a Tier 1? Well, I think that is wishful thinking. Possibly a case of necessity being considered a virtue. For I still maintain my thesis that SEE takes 75% of the auto market with the Magna mirror and Valeo.  

Positives for SEE

If there is a positive for Seeing Machines, itā€™s that the logjam regarding larger auto contracts appears to be over. Moreover, the SEYE contract starts in 2027 so I think SEE via the Magna mirror has won a lot of contracts that will start before then.

That said, if we donā€™t get a big auto contract by the end of this quarter itā€™s definitely a disappointment. Itā€™s particularly so given the fact that the strong likelihood of multiple contracts this quarter was flagged by both CEO Paul McGlone and his CFO, Martin Ive, in various interviews.

Still, I do believe they are honest and have been let down by OEM shenanigans re. The announcement of further contracts. My hope is that CES will deliver the news weā€™ve been waiting for re. Auto, with great news coming for Aftermarket with the launch of Gen 3 Guardian.

Indeed, Iā€™ve been impressed by Ive since he joined (and not just because he looks like my younger brother). I also hear that he is cutting expenditure, as promised, to ensure SEE reaches breakeven as promised.

More effective communication

In the absence of said contract news, Iā€™d like to see more timely and effective communication to stem the concerns of private investors. They (unlike fund managers) canā€™t just ring up the CEO to check on their investments. Moreover, for a private investor their investment often represents a huge proportion of their investment portfolio, not a mere 5 per cent maximum as in most funds.

I ask for this because I fear that many private investors are currently selling down their holdings because of a lack of reassurance from the company. Times for many are tough and Iā€™d hate for private investors to miss out on what I increasingly believe will be rich rewards.

Please donā€™t take my word for any of this, itā€™s just my humble opinion and Iā€™ve been wrong on details in the past. That said, being too early into an investment isn’t the same as being wrong. Indeed, I maintain that my original investment thesis remains intact, which is why I still hold this stock. In any case, do your own research as it will benefit you in the long run.

The writer holds stock in Seeing Machines.

6 reasons why SEE gets bought in 2024

Iā€™m convinced that next year is set to be the year that Seeing Machines finally gets bought.

Hereā€™s why: 

  • In the next few months Seeing Machines will prove to even the most sceptical observer that its DMS/OMS land grab has been successful, with it taking over 75% of the global market by value. The partnerships it has formed with the likes of Qualcomm, Magna, Valeo, etc. are unrivalled and its tech and implementation are clearly a cut above any other provider.
  • The launch of the third generation of its Guardian product for trucks and buses will see that business slash box costs and times for installation, enabling it to go ten times on that business in short order. Mobileye marketing it for Aftermarket should be a game changer.
  • Aviation will have been proved as a lucrative business that has legs, thanks to its partnership with Collins and the first of many huge, long-term contracts.
  • It is also clear that its technology has applications in other transport verticals, marine, and rail for instance, not to mention other industries such as robotics, entertainment, and security.
  • Profitability will become a certainty with the above contracts, leading to more funds investing and the price rising substantially, making it more attractive and fuelling the greed of a potential buyer.
  • There are just too many huge companies who now have a direct interest in acquiring this market leader, not to mention a huge amount of Private Equity capital available to fund a takeover. Moreover, if it were to go for $5bn, they could be fairly confident of it rising in value to $15bn-Ā£20bn within a three-year horizon.

While the bulk of investors (including fund managers) are only now beginning to understand the strengths and potential of Seeing Machines, that canā€™t be said of the industry players, the chip companies and Tier 1s, who regularly work with Seeing Machines or come across its technology. Moreover, the likes of Alphabet, Amazon, and Apple know Seeing Machines and must like what they see.

Great business

A much smarter man than me, an investor, business manager, and experienced entrepreneur who has sold businesses, once told me: ā€œGreat businesses get bought NOT soldā€. 

While some may hanker after a Nasdaq listing, I think market conditions over the next year and beyond will mitigate against this and leave an opportunity for a competitive bidding situation to arise.

I donā€™t know when exactly this will happen nor who will win but a bid is coming, of that Iā€™m fairly certain. After all, Bosch was interested 5 years ago and Seeing Machines’ business is incomparably stronger now. Moreover, the dream of widespread adoption of autonomous vehicles has been shown to be just that, a dream that will take decades to be realised. Thus leaving the field to those who want to make driven cars safer.

Great value

In view of all the above, there is just too much value here at a sickeningly cheap price. (Iā€™d be saying that even if the price was 35p, not 5p). The market abhors cheap value, as much as nature abhors a vacuum.

The writer holds stock in Seeing Machines.

Seeing Machines revenues beat broker forecasts

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 modelā€™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 EUā€™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:

ā€œSince 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.ā€

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

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, Iā€™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

Iā€™m confidently predicting that Seeing Machines will beat these estimates and have pencilled in revenues of around US$60m for 2023. Iā€™m not even going to provide 2024 estimates as I expect all the brokers to upgrade soon. Indeed, even their initial upgrades wonā€™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. Iā€™m hoping it is before the end of September and is announced with at least one sizeable contract ā€” 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, Iā€™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 isnā€™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: ā€œWe 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.ā€

Given that Seeing Machines always plans years ahead you can be pretty confident that what Chantry opined isnā€™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 SEEā€™s tech getā€™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 UKā€™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 ā€˜bad Ted drivingā€™ and save lives.

The writer holds stock in Seeing Machines.