Mitsubishi to buy Seeing Machines by Christmas?

Despite Seeing Machines share price being in the doldrums, I’m optimistic that breakeven (on a monthly basis) later this year will be swiftly followed by a takeover offer from Mitsubishi. If my calculations are correct this could happen as soon as this Christmas.

Although I don’t have definitive proof, I hope even my harshest critic could not fairly accuse me of laying out before you a ā€˜delusional’ scenario. Indeed, there is an ineluctable logic to Mitsubishi moving to buy Seeing Machines in a friendly takeover by early December.

Why Mitsubishi? 

There are a number of reasons why I believe Mitsubishi is most likely to acquire SEE. Mitsubishi holds 19.9% in Seeing Machines, their engineers are working together developing advanced driver monitoring features, Mitsubishi is helping increase sales of Guardian Gen 3, and Mitsubishi has the resources eventually to use the technology in everything from fork lifts to robots. Indeed, more immediately, the wide range of activities of this Japanese group shows an almost perfect fit with SEE’s 3 divisions; Auto, Aftermarket and even Aviation.

There is also a strong cultural fit, as this Japanese company prefers a consensual approach to a takeover. This fits with the Australian preference for a scheme of arrangement for a friendly takeover of an Australian listed company.

Why this year? 

Firstly,  despite being delayed, breakeven on a monthly basis is forecast to occur before December. Fortunately,  Euro NCAP and GSR2 regulation compel the road transport industry to accelerate the introduction of camera-based driver monitoring, and we’ll see increased license royalties from auto and sales of Guardian Gen 3. 

Seeing Machines should also have significant additional contract wins in Auto and Aftermarket over the coming months, confirming its dominant position as the number one global player in advanced, camera-based driver/occupant monitoring (morphing into interior monitoring) for years to come.

Breakeven with a pipeline of contracts guaranteeing significant profits should trigger buying from fund managers who’ve been patiently sitting on the sidelines. More importantly, it would likely reinforce Mitsubishi’s determination to follow through with its plan. I say ā€˜plan’ because this is clearly a strategic move that has been on the cards for a while.

Mitsubishi has already conducted extensive due diligence prior to investing in Seeing Machines and, with its near 20% stake, has a slight advantage over other potential buyers. It also makes sense for Mitsubishi to buy Seeing Machines just before it becomes highly profitable, otherwise the acquisition price could quickly spiral upwards.

Interestingly, the personal interests of CEO Paul McGlone and that of investors in Seeing Machines appear closely aligned: a bid would be at a premium to the share price (certainly multiples of its current price of approximately 2.5p) and enable him to secure his 25m performance shares before his current contract expires on June 30, 2026. It’s all detailed in the last annual report on Page 67, for those unfamiliar with the details. Note the target share price (TSP) needed for the CEO to secure the maximum number of his 25m performance shares is 20p.

Given the time it takes to process a scheme of arrangement (normally 3 months) and the fact the Australian Court is closed from mid-December to February, for Seeing Machines to be confident of closing the deal before Paul McGlone’s contract expires, early December 2025 seems the latest date that any potential deal would be announced.

The CFO Martin Ive has also been steadily hoovering up shares. Surely he is confident of a significant price rise when SEE achieves the long-awaited breakeven? Warren Buffett would certainly approve, having advised: ā€˜Be fearful when others are greedy and greedy when others are fearfulā€.

Price

What sort of price do I expect Seeing Machines investors to receive if this scenario pans out? I think the best they could hope for would be somewhere above 20p but probably below 40p. It’s unrealistic to expect more unless other bidders suddenly materialise. Still, by agreeing to a price well above 20p Mitsubishi could reduce the odds of that happening. 

I doubt the management of Seeing Machines, never mind the funds holding it, will look kindly upon a price below 20p given the huge rise in auto royalties that are guaranteed, not to mention the contract wins expected across all 3 divisions. Moreover, they’re probably in a position to encourage other bidders to step in were Mitsubishi to try. However, I think Mitsubishi has more honour and sense than to even attempt a low-ball offer.

Battle of the Titans

Regardless of the eventual price agreed by Mitsubishi and Seeing Machines, I wouldn’t completely rule out the possibility of other companies stepping in with hostile bids, which would start the long-awaited ā€˜Battle of the Titans’. The list of potential rival bidders is long and could include one or more of the following: 

  • Amazon
  • Alphabet
  • Apple
  • Raytheon (parent of Collins Aerospace)
  • Qualcomm
  • AMD
  • Nvidia
  • Mobileye
  • Magna 
  • Valeo
  • Tesla

There might also be left-field entrants or a bid from a private equity player. Alas, the state of the world being what it is, I don’t thinkĀ  a bid from a Chinese company would stand a chance of being accepted.

Crucially, it would take a big number to hijack what, to me at least, seems to be a very likely deal. Yet, in the above list of rival potential bidders there are some huge hitters.

Of course, I’m not Nostradamus and my assumptions could be completely wrong. Therefore, it’s advisable to do your own research and always invest only what you are prepared to have tied up for a while, never mind lose.

The writer holds stock in Seeing Machines.

Seeing Machines focused on cashflow breakeven in CY 2025

It’s clear from the latest spate of redundancies that Seeing Machines management is laser focused on achieving breakeven this calendar year.

In addition to cutting staff numbers by 77 in CY2024, the recently announced strategic reorganisation was accompanied by another wave of redundancies (70 people?) from Jan-March 2025, that is set to further cut costs, by Ā£12m annualised. 

According to a note issued on 27th March by analyst Peter McNally at house broker Stifel: ā€œThe $12m annual cost reduction means there should be a clear path to monthly cash flow breakeven in 9 months time.ā€

I’m naturally sad that so much talent at Seeing Machines is being let go and am well aware that the delayed development of Guardian Gen 3 played a large part in slowing the company’s progress to cashflow breakeven. Hopefully, these talented folks will find good jobs elsewhere and may even return to Seeing Machines as the business grows.

Still, as an investor it’s my job to assess if the reason for originally investing in Seeing Machines is still valid. I’m still convinced it is and reading Peter McNally perceptive analysis is reassuring. He explains: ā€œSeeing Machines results show the company is adapting to a more challenging environment by adjusting its internal costs with the goal of reaching cash flow breakeven in the current calendar year.ā€

That doesn’t mean I don’t have questions and I hope to get answers to some of those questions at this week’s investor event – the so called ā€˜Town Hall’. (I can’t think of a Town Hall meeting without a bit of argy bargy — but let’s try and keep it civilised).

Whatever management mistakes delayed bringing Guardian Gen 3 to market it has developed and commercialised world class technology in multiple industries, making some super deals with partners ranging from Collins Aerospace to Mitsubishi and Magna. As someone who knows I could never run a company, I do respect those who possess that ability. Let’s not forget that Seeing Machines is actually saving lives. Not many of us can say that. 

Scandalous

If I’m angry and disappointed, it’s with the car and lorry manufacturers who have delayed implementation of life saving driver monitoring tech in order to save a few dollars. A few dollars that could have been shaved off the bill of materials somewhere less critical. That’s scandalous.

However, even that delay can only be temporary thanks to Euro NCAP’s sterling work and GSR2 regulations. All those OEMs are really doing is damaging their own reputations for safety alongside sales.

Guardian Gen 3

The good news is that in his note McNally confirmed that Guardian Gen 3 is now totally ready, in production and shipping now for various trials, which should lead to much larger orders in due course. 

ā€œThe biggest news in today’s results to us is that the Gen 3 Aftermarket product is ready, tested and now in production with early shipments commenced. This is not just the GSR-ready version of Gen 3, but the full Gen 2 replacement equipped to handle over the air updates in a better form factor. This is one of the main factors in revenue and profitability growth going forward, in our view. It should also improve recurring revenue from Driver Monitoring as units go live in the field.ā€

I obviously want more details on maximum monthly production volumes, prices and so forth. Yet, McNally is right when he describes Guardian Gen 3 as ā€œa significant swing factor in future revenue and profitability, especially with the Mitsubishi partnership referral agreement in placeā€. 

Moreover, If the Mitsubishi partnership referral agreement delivers the volume of sales of Gen 3 that I expect, breakeven in 9 months may prove overly conservative. 

The main issue I have is separate to that, and relates to the truck manufacturers installing factory fit DMS for ADDW. The EU GSR legislation absolutely demands it. Yet, so far, there is little evidence of the likes of Volvo, DAF, Mercedes-Benz etc installing it. Only in buses have I seen much evidence. I’d certainly like to know if trucking OEMs are dragging their feet on that for the same reason some auto OEMs have.

Fortunately, large enterprise customers appear to be complying and those 7 ā€œbig trialsā€ for Guardian Gen 3 that Paul McGlone recently confirmed are clear evidence of that. A win with Amazon would be huge news that could double the share price of Seeing Machines in a day. (I’m hoping we get official confirmation by the end of April). 

Breakeven

Let me be clear. Achieving cashflow breakeven will be a game changer for Seeing Machines. I know, from previous conversations with fund managers and recent ones with City contacts, that there is a tsunami of fund manager cash keen to come into SEE once it has proven beyond any shadow of doubt that it is set to be profitable. I still believe Paul McGlone, Martin Ives, John Noble, Mike LennĆ© and the rest of the team at Seeing Machines can make that happen. 

As evidence of the appetite for investment in the company Peel Hunt has now upgraded Seeing Machines from ā€˜Reduce’ to ā€˜Buy’, because of the ā€œupside potentialā€ though the price target remains at 3p. (I’m also expecting Singer to soon initiate detailed coverage).

With US$39.6m in cash Peel Hunt believes SEE has ā€œat least 12 months of runwayā€ and I believe that is more than sufficient time for it to become profitable and the share price to take off. 

I look forward to seeing our guests from Australia this week along with my fellow investors – some of whom have grown older with me.

It’s been a hard few months for SEE and for its investors. Still, I hope the smiles will be back on our faces very soon. 

The writer holds stock in Seeing Machines.

Mitsubishi’s strategic stake in Seeing Machines

A few thoughts on the strategic investment in Seeing Machines taken by Mitsubishi Electric Mobility Corporation, part of the huge Mitsubishi conglomerate.

  • It secures the cash for Seeing Machines to hit breakeven regardless of the vagaries of the economy, automotive sector or machinations of any single industry player or partner. 
  • It ensures that when a bid is made for Seeing Machine it will be at a very competitive price. The company cannot possibly go on the cheap. 
  • It provides a local partner in the Japanese market, which should make it much easier to gain a strategic stranglehold in the Japanese automotive sector, while also ensuring further diversification in its Tier 1 relationships.
  • Via Mitusubishi’s network we should see Gen 3 Guardian sales in trucks rocket from here on in. It also produces and sells buses and trucks via the FUSO brand – a collaboration with Daimler Trucks. 
  • It potentially opens up new markets to Seeing Machines technology. Mitsubishi manufacturers road construction, agricultural equipment and even forklifts, which could use Seeing Machines’ driver monitoring technology to reduce accidents caused by driver fatigue.
  • The fact that Mitsubishi was determined to take the maximum percentage of shares it could take without triggering a bid (19.9 per cent) tells me how highly it values this investment. It plans to develop more personalised robots in the future for a rapidly ageing society in Japan and combining Seeing Machines’s human fatigue/cognitive state detection with heartbeat detection would be useful features for a domestic ā€˜carer’ robot to have. 

Consumer Electronics Show

With the Consumer Electronics Show (Jan 7-9) expected to bring news of further license deals, the list of possible buyers of Seeing Machines grows ever longer. 

Moreover, in calendar 2025 I expect its market leadership to become both undeniable and unassailable in the medium term, as:

  • It surpasses 5m cars on the road with its DMS/OMS technology
  • It becomes profitable on a monthly basis by June.
  • Guardian goes past 100k units.
  • The Aviation product is readied for use. 

VW Tayron on sale now

The Volkswagen Tayron, which includes Seeing Machines DMS in its rear view mirror, is due to go on sale in the UK this week. 

The first UK reviews of the vehicle should take place in the spring, possibly mid-to-late March; there may well be some reviews from overseas drives before that, in late February or early March.

This should rapidly boost the profile of its life-saving technology, not to mention public interest in buying shares in a tangible AI product.

The writer holds stock in Seeing Machines

The Pretenders are dead, long live the King of DMS

At yesterday’s Capital Markets Day for Seeing Machines it was standing room only, as Colin Barden an independent analyst at Semicast Research presented the news that investors in Seeing Machines have long waited to hear: though the coronation has been delayed, it will be the King of DMS.

It was hard news for rivals but, in one slide, Barnden presented his projections for the market shares come 2022. He estimates 40-45% for Seeing Machines, followed by 15-20% for Mitsubishi Electric. All other rivals are left lagging far, far behind, with Smart Eye in particular estimated at 5-7%.

That said, I saw no evidence of complacency from the Seeing Machines staff, quite the reverse. McGlone, in particular, came across as a man determined to deliver profitable growth. He certainly doesn’t look like the sort of guy who will let a rival eat his lunch.

Paul McGlone, CEO, Seeing Machines

Paul McGlone, CEO, Seeing Machines

The growing interest in its DMS technology was clear from the host of analysts I met at the event: Sanjay Jha of Panmure Gordon, Lorne Daniel at FinnCap, Caspar Trenchard at Canaccord Genuity and even one from Steifel (there may well have been others). I’m sure the house broker Cenkos was represented but house analyst Jean-Marc Bunce was the invisible man on this occasion.

Fleet

Probably, a wise decision on Bunce’s part as I’ve been trying to find out why he’s taken such a conservative stance on fleet. In his note dated 23rd September he states on page 1: “We believe the guidance for 27-30k connections at the end of FY20 is conservative and underpinned by a strong pipeline.ā€

Yet on page 4, he contradicts this, becoming ultra conservative, when he writes:Ā ā€œā€¦.our Fleet connection forecasts are based on connections below the guidance of 27-30kā€.

I wondered why he decided to do this and also upon what number of fleet connections he actually based his projected revenue figure of A$20.9m? By my calculations to arrive at A$20.9m he must have used less than 18,000 installations, which does appear excessively low.

Yesterday the new CEO, Paul McGlone was in combative mood as he faced down attempts to extract projections on the number of Fleet sales for 2020, sticking to guidance of 27-30k. He even declined to provide a current figure. I assume this is because Seeing Machines hopes to upgrade at the interims and doesn’t want to spoil the surprise. Personally, I don’t particularly like surprises even to the upside.

The reduction in the unit cost of Gen 2 Guardian by 21% announced yesterday must surely drive increased uptake from fleets as will the increasing number of distributors and deals with insurers.

Mike Lenne, the Human Factors expert who heads up Fleet does appear to be its secret weapon when it comes to persuading Fleets to use their technology to improve safety. HIs calm, analytical approach should pay dividends and puts Seeing Machines in a league of its own.

It was the first time I’ve met Tim Edwards, one of the original brains behind the technology along with fellow co-founder of the company Sebastien Rougeaux. Edwards comes across as a very modest man, particularly for a genius who jointly developed this life-saving technology.

Aviation

While CEO McGlone and Pat Nolan, who heads up Aviation, were chided slightly for building up expectations re. an aviation licensing deal with CAE and L3 Harris, I got the impression such a deal is at most a 2-3 months away. We’ll see I guess. The great news is that end users (such as Alaska Airlines) are now requesting that manufacturers of full flight simulators now have eye-tracking from Seeing Machines.

Auto

As for Nick DiFiore, who heads up Auto, I’m expecting him to deliver a lot. Volvo for one, VW for another pretty soon. Followed by Japanese OEMs. Oem decision-making has been the main reason for delays up to this point but See does appear remarkably well positioned with Xilinx to grab market share from Nvidia and Mobileye. The fact that Fovio can identify an incapacitated driver makes it a shoo-in for Volvo and parent Geely may well have decided it needs it too.

The US market really needs to hear this in its own accent and so it was good to be told by Paul McGlone that it will be getting a US broker. I do hope it is Morgan Stanley. I’ve long wished to read/hear Adam Jonas extol the virtues of Seeing Machines.

Overall then, while I would have liked more opportunity and time for detailed questions, I feel that further patience will be handsomely rewarded here. Of course, every investor should do their own research.

The writer holds stock in Seeing Machines.