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:
- Signing an aviation licensing deal,
- Aftermarket product sales and accompanying monitoring contracts outstripping our estimates — as management is confident they will, and
- 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.