Is Seeing Machines set to be taken over within 6 months?

Following today’s interview with Seeing Machines CEO Paul McGlone, I’m convinced that Seeing Machines is set to soon follow Veoneer and be the subject of a bidding war, most likely within the next 6 months.

The main driver is its dominance in the automotive driver monitoring space, where it is set to win the lions share of a multi-billion dollar market over the next year. (My view is it wins at least 70% of the RFQs).

McGlone was very candid in the interview and the key part I’m going to refer to starts from around 13 minutes in. There he outlined the problem winning most of the DMS/OMS market brings to a relative minnow:

“In my opinion, this is the beginning of the consolidation in interior sensing. Not the end, the beginning. I doubt very much whether there will be 3 or 4 majors in this space 2 years from now.”

“One of the challenges we have right now is that with almost a billion dollars of RFQs, which is more than we’ve seen in our entire life, on our table today, and we expect another billion next year, we have a really important decision to make. Do we pursue it all, do we get selective and strategic about what we pursue? What are the investment implications for either choice?

It is very, very clear: if we pursue it all and we win at our historical run rate of 40 plus per cent it is a fantastic return on investment. So, over the next 2 quarters we’ll be looking in great detail around the volume of RFQs, the requirements in each of them…the cost of doing them and the return on investment. That is the big decision for us to make. We don’t have to make it now but we’ll be working on it over the next 2 quarters.”

I personally think the opportunity is so huge that even if Seeing Machines wanted to pursue the opportunity offered by automotive alone, it won’t be allowed to do so. However, I think they’ve already decided to sell if the price is right.

By the way, I think that price will be over £1. Looks silly when the price is 10p but huge contract wins haven’t yet been announced. When they are the price will rise and £1 will eventually look cheap.

Qualcomm grabbed Veoneer from the hands of Magna because it sees the strategic importance of active safety in automotive to its future business.

Seeing Machines is of even more importance as its technology is the jewel in the crown of active safety (an area that has grown in importance as the automotive industry comes to realise that mass adoption of fully autonomous vehicles is decades away). While car computer systems will increasingly carry out more tasks for drivers they’ll still need to ensure drivers are paying sufficient attention to take over when required.

Moreover, Seeing Machines technology, which at its height goes far beyond mere eye-tracking and helps computers to assess the cognitive load of a human (including whether they are incapacitated or not), has many uses that go far beyond passenger automotive. This includes trucking and uses in aviation (training simulators, ground control tracking and planes). Shipping and flying cars will surely follow and spacecraft would logically use it eventually.

Yet, its tech has uses far beyond transport: in XR headsets, mobiles, medical devices and robots. In all these markets Seeing Machines technology has the potential to deliver multi-billion dollar revenues to its owner.

That’s why, although I expect it to be valued partly on a forward order book in automotive, its dominance in the trucking and nascent aviation markets will also increase its intrinsic worth.

Crucially, it should also obtain a healthy premium for its strategic importance in developing future markets.

That’s why, although Qualcomm must be red hot favourites to take it over, there is the likelihood that another chip company (eager to spoil the party) or even a private equity firm (awash with dry powder and seeking to acquire valuable assets) will make a bid.

I also think a bid from Apple or even Alphabet is a strong possibility. Each will know its strategic importance to their future plans and be prepared to outbid Qualcomm for it. For example, after the money spent on Waymo for little real return it might make sense for Alphabet to hedge its bets and spend a few billion dollars to acquire a guaranteed golden goose like Seeing Machines. Equally, why should the forthcoming Apple Car not use its own DMS (from Seeing Machines) and use that technology in its own computer chips to power its headsets, mobiles and computers?

Of course, I could be completely wrong. After all, I once thought driver monitoring would be one of the hottest areas in automotive and look how that worked out.

The writer holds stock in Seeing Machines.

Expect massive re-rate of Seeing Machines by year end

Seeing Machines put out a positive year-end trading update today, without actually providing news of auto contract wins.

Fortunately, they are set to pile up over the next 6 months, with the company admitting it is bidding for a A$900m pipeline from numerous car manufacturers with 16 Tier 1s.

My view is that Seeing Machines, which has been working with the likes of Toyota and VW for years is set to take at least 75% of that pipeline. Indeed, one source (from outside the company) has already told me that A$750m is the figure I should have in mind, which would equate to over 80%. Another source (again outside the company) has recently validated my long-term bullish view on the company’s prospects in auto.

Of course, that pipeline will also grow as OEMs scale up initial contracts further. Indeed, the fact that Seeing Machines tech is now so much in demand must be the reason so many Tier 1s are now scrambling to work with it. They, unlike most investors, have seen the writing on the wall and its reads: ‘Seeing Machines DMS rules ok!’

That of course brings in the whole question of who is going to bid for the company and when?

With a A$1bn+ order book in auto set to become a reality in the present financial year, I’m sure informal approaches are becoming more regular. 

But Seeing Machines is traditional and I have a feeling any match will be an arranged one. One that will need the approval of the whole family of shareholders.

However, Seeing Machines needn’t be in any rush as its value should be considered in pounds not pence. I’ve earmarked the end of calendar year 2022 as the most likely date by which we’ll have some M&A action. By then it will be clear that:

  1. I’m not making this stuff up.
  2. Aviation is another cash cow
  3. VR headsets/mobile phones is a likely growth area for its tech. For instance, its technology seems perfect for the next iteration of the Microsoft Hololens, which only has rudimentary eye-tracking.

The exact timing of any offer depends, of course, on contract announcements and broker upgrades as companies generally prefer de-risked investments. Still, by the end of this year I expect Seeing Machines’ auto division to be almost totally de-risked.

At this point, I want to put in a plea for Seeing Machines to engage Morgan Stanley as a broker and to ensure Adam Jonas is the analyst covering it. It is a plea I’ve made directly to the company in the past and now is certainly the time to consider it seriously. 

SEE is a global leader in one of the hottest areas in tech. Waymo brags about full autonomy but in scale that is decades away. Long before then Seeing Machines tech is going to be in hundreds of millions of cars.

It therefore needs huge coverage in the US, where they naturally think big and fully value a successful global tech company. Who better than Adam Jonas to serve SEE up to the investment world?

Price

Speculating on price is a mug’s game. But then I’ve been labelled a mug multiple times for holding SEE for so many years. So here goes:

Personally, I think £1 is achievable in the next 12 months, provided:

  • VW/Toyota contracts are announced before the end of 2021
  • Someone admits we’re in Honda, courtesy of GM
  • Qualcomm reveal more about our wins together in auto
  • Volvo win is announced (Okay, I just put that in because I crave validation)
  • We get at least one firm aviation licence deal
  • We get Morgan Stanley (more importantly, Adam Jonas) on board

It could be a lot more by this time next year, if:

We get confirmation that our tech is being factory fitted to trucks

We get confirmation that Microsoft is putting our tech into the HoloLens headset

We get confirmation that Apple/Tesla is using us

An aviation license deal provides significant up front payments

If a bidding war were then to kick off, well it could even stretch to an Ayrton Senna. However, I’m sure a certain chip manufacturer or some Private Equity firm laden with dry powder won’t want a bidding war.

Soon, the institutional holders will have to decide: do they want a pound in the hand or a tenner in the bush?

The writer holds stock in Seeing Machines.

Battle of the Titans draws ever closer

I’m glad to finally get confirmation from Seeing Machines that the Mercedes S Class contains its driver monitoring system. Especially, as this website was the first to reveal this 4 years ago. The additional models announced today are all good news too.

Okay, we all know about NDAs and lead times in the auto industry by now but, as the deadline for mandatory DMS in Europe nears, SEE is clearly benefitting from a rush for its tech from OEMs.

The good news is that there is a growing pipeline of auto wins that I expect over the next 6 months,  My firm view is that Seeing Machines will (eventually) be in a position to announce wins with VW (and Audi), Toyota, Honda, Subaru, Volvo etc. etc.

Seeing Machines has effectively crushed the opposition and with the help of Qualcomm and Xilinx is scaling up its auto operations beyond the expectations of many.

It’s also making huge strides in getting its technology into the real world via Fleet and Aviation. More on that in due course.

My view is that overall it’s heading for A$1bn+ turnover by 2025. Of course, until the news is ‘official’ and house brokers have put the numbers out, there will be justifiable scepticism. Still, the exact number is less important than the massive revenue and profit acceleration path it is forging. That is now becoming increasingly clear to a host of sweet-toothed companies that would love to acquire a de-risked jam factory.

That is why I expect there to be a massive battle to acquire SEE well before 2025. By late 2022, early 2023, I reckon.

The leading runners and riders will doubtless include some or all of the following:

Expect at least one left field bidder, who could even start the auction off with an opportunistic bid.

As to the price? Well, my minimum is £1 a share. My maximum is £4 by 2023.

A warning: I could be completely wrong. After all, maybe it really was blind luck that I guessed about the Mercedes S Class back in 2017. Moreover, circumstances and stock markets can change quite rapidly, defying conclusions based on fairly accurate analysis.

If you’re in two minds about this you have to ask yourself one question: “Do you feel lucky?”

“Well do you punk?”  (2m 11sec)

In any case, do your own research before investing.

The writer holds stock in Seeing Machines.

 

 

 

 

 

Seeing Machines bags Nio

At the Qualcomm shindig last week, it was fascinating to learn that 20 automakers have selected Snapdragon automotive cockpit, gen 3, particularly as I believe most, if not all, of them will have Seeing Machines DMS integrated into it.

I’m sure that one of them is the Nio ET7, the Chinese would be Tesla killer. You don’t have to be much of a detective to work it out as the clues are all within an easy Google. Nio is signed up with Qualcomm and has an enhanced DMS. Hmmmm does anyone know a supplier of advanced DMS that is working with Qualcomm? Answers on a postcard, please.

Fortunately, Qualcomm also supplied a photo clue last week.

Screenshot 2021-01-26 at 15.44.20

I certainly would not rule out a Qualcomm bid for Seeing Machines in the future. Its technology has applications in markets far beyond automotive that Qualcomm would love to dominate. The more Seeing Machines impresses Qualcomm (and it got a lot of respect last week), the more likely it is to want to snap it up on the cheap. Keep watching.

The writer holds stock in Seeing Machines.

Are Qualcomm and SEE climbing the Great Wall?

It appears the share price of Seeing Machines is continuing to climb in anticipation of some big announcements from Qualcomm next week.

It would appear very likely that Seeing Machines via Qualcomm has made very big strides in China.  In addition, I came across some interesting news from Japan. Here are two snippets that may hold the key to the rise.

The first is news of Great Wall Motor in China. The second is news of Japanese OEM Honda installing DMS.

I don’t have definitive proof of either but I expect more good news very soon.

The writer holds stock in Seeing Machines.

 

 

Seeing Machines storms CES

All the news coming out of CES is very positive for Seeing Machines and I’m more confident than ever that it’s on target to take 75% of the global DMS market over the next few years. (Naturally, Seeing Machines itself and its broker Cenkos prefer to state a target of 30-40% publicly).

The tie-up with Qualcomm was probably the highlight of the show for me and it’s great to hear that they’re both working with a “global premium automaker”. It has been suggested it is a new OEM, if it is I assume a more detailed RNS will eventually be published.

Yet the partnership with Qualcomm, apparently at the latter’s instigation, may also be much more significant than many realise. It opens the possibility of marrying industry leading eye-tracking with chips that can go inside mobile devices and VR/AR headsets. It is potentially a huge opportunity and some speculate that a lucrative licence deal is possible for Seeing Machines. (If so, let’s hope it arrives sooner than the “imminent” Aviation licencing deal that we are still waiting for!).

Further out, robots/cars should soon be capable of displaying empathy using eye-tracking that can also interpret cognitive load/read facial gestures.

With EU safety legislation now law, and other countries set to follow Europe’s lead, the near-term future is increasingly bright for SEE. Indeed, this is a company that should be worth billions right now.

Volvo

Strangely, though, there has been silence re. Volvo. My industry contacts tell me it has finally decided who will be supplying its DMS and I’m pretty confident it will be Seeing Machines as it’s the only system that can accurately tell if a driver is incapacitated – a feature teased by Volvo in early 2019.

I expect it will first feature in the 2021/22 Volvo XC90 but Volvo are staying tight lipped as are Seeing Machines and the likely Tier 1, Bosch.

While the share price has been motoring, the next trading update (expected in a week or so) should provide further proof that fleet is set to comfortably beat full-year estimates.

This is a stock on the move and I’m increasingly confident that a huge re-rating is just a matter of weeks away.

The writer holds stock in Seeing Machines.

Toyota or bid announcement?

The good news for investors in Seeing Machines is that I’m hearing from multiple sources that Seeing Machines is set to win a contract with Toyota next.

Apparently, it’s the only driver monitoring system (DMS) that is being specified in multiple Tier 1 bids – as was the case with the big BMW win recently. If true – and I see no reason to doubt my sources’ information – it just goes to further reinforce the global domination of Seeing Machines’ Fovio DMS in the auto industry.

Bid coming?

For that reason, I’m not surprised that there are now 10 market makers for the company on the London Stock Exchange, up from 4 a year ago. Most recently, Berenberg have started broking them. The better news is that I think this German bank may be acquiring shares for a company that plans to bid for Seeing Machines.

I could be wrong about that last assumption: Berenberg may be buying for a German fund. Nevertheless, various sources are warning of an imminent low ball bid – somewhere around 25p-30p a share for Seeing Machines. 

Some of my sources believe it is a Tier 1 auto supplier, others discount that theory. Interestingly, when asked about this in a previous interview back in March, Ken Kroeger did tease: “I agree it is either someone like that who can see the full value or a really diverse Tier 2 or Tier 1, as opposed to the OEM.”

While traders might be impressed by that figure, anyone with any knowledge of the auto industry and even an average understanding of Seeing Machines proven technological global dominance in driver monitoring systems shouldn’t be.

If such a bid should materialise I’ve been told by multiple sources that certain chip manufacturers (Intel/Nvidia, Xilinx and Qualcomm) would most likely be prepared to offer a lot more than a measly 30p. So I fully expect a competitive bidding situation to materialise if the rumour turns out to be fact.

Seeing Machines house brokers haven’t issued any upgrades in a long while. Still, based purely on old figures from Canaccord Genuity’s Caspar Trenchard note of Jan 9, (which excludes any figures for the huge Ford win as well as the big BMW win) it must be worth at least 59p a share. That is 30 times forecast revenues for 2019 of A$79.5m = 59p a share.

You could even argue that SEE should be on a higher multiple, such as the 42 times revenue multiple that Intel paid for Mobileye when it went for US$15.3bn. That would equate to roughly 83p a share for Seeing Machines. (This obviously ignores any value for Fleet, Rail and the Caterpillar business).

Yet, the strategic importance of Seeing Machines to the future of transport (never mind vision for robotics) will have been noted far and wide. In such a situation, I’ve been told that the chip companies are often prepared to pay up without months of haggling over the odd US$1bn. It’s small change to them when global domination is at stake.

Even Apple and Alphabet (parent of Waymo) can surely see the sense in DMS, so for what is petty cash for them they could also come in.

The writer holds shares in Seeing Machines.