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.

 

 

 

 

 

Why Seeing Machines is grossly undervalued

Long term holders of Seeing Machines are well aware that it is the global leader in Driver/Occupant Monitoring and seems set to take a 60-75%, chunk of the automotive market driver/occupant monitoring by 2026.

Now estimates of the size of the light vehicle automotive market by this date do differ but not hugely. IHS estimates 110m light vehicles will be sold annually by 2026. Cenkos estimates 112m and a penetration rate for DMS of 67%, with Seeing Machines estimated to win 38% market share in calendar year 2026 producing an annual revenue figure of A$248m from auto alone. (You can see this information on Page 8 of its note issued on 2 February 2021).

Cenkos has a price target of 16p, which certainly appears miserly given the massive revenues that are coming further down the line. The reason for this is two-fold:

  • Firstly, Cenkos has applied a discount rate of 11.5% on its future guaranteed cash flows from vehicles in which Seeing Machines’ DMS and OMS is to appear.
  • Secondly, Cenkios can’t provide figures for RFQs that are expected to be won this year and the cars in which it will appear with Qualcomm. That’s fair enough although Cenkos has admitted that the figures against contracts already signed are minimum amounts and quite likely to increase at least 3 times.

Discount rate to fall

This year, as auto contracts are won – and they will be won – I’d expect a double whammy to significantly increase the Cenkos target price as future guaranteed revenues rise and its discount rate falls.

I’d argue that even now a discount rate of 7% based purely on the conservative (how I dislike that word) figures from Cenkos would be more appropriate given the quantum of risk. Were that to be applied, the price target from Cenkos would be nearer 40p right now.

[For the purposes of simplicity I’ve ignored the accelerating revenues from its driver monitoring as a service Guardian products that feature in trucks. I’ve also ignored its products in aviation — though, they’re expected to be very significant in time.]

Despite the po-faced analytical rigour adopted by many analysts  when discussing equity risk premiums it’s hardly an exact science, more of an art.  The disparate factors you need to take into account are the stuff of which academic careers are made. And anyone who doubts the complexity in modelling them should read this paper by Aswath Damodaran.

Conclusion

What I’m trying to convey is that Seeing Machines is grossly undervalued currently and, though I expect it to hit 40p this year as Cenkos ups its price target due to increased future auto revenues and a reduced risk rate, I don’t expect it to hit fair value even then.

Only when people realise Seeing Machines’ market share is going to be in the 60%-75% region and that it is likely to be bought for many billions as Mobileye was (US$15.3bn), will Seeing Machines price come close to matching its intrinsic value.

My guess is that uninformed observers will wonder in awe as Seeing Machines’ share price accelerates over the coming 12 months. My view is that it’s all very predictable if only you’d conducted sufficient research.

The writer holds stock in Seeing Machines.

Fisker set to use occupant monitoring from Seeing Machines in A$7m deal

It seems that US electric vehicle start-up Fisker is set to use Seeing Machines combined driver and occupant monitoring system in its innovative Ocean electric SUV, with Magna as the Tier 1.

The vehicles goes into production in 2022 but Seeing Machines should get near term Non-Recurring Engineering revenues according to house broker Cenkos, which reiterates its 16p price target.

The deal is officially worth A$7m but, as we know from experience, these contracts have a habit of growing as additional models are launched. Hence, A$7m is very much an ‘initial’ and conservative estimate of its real worth.

It’s good news for Seeing Machines as the vehicle is set to be very popular and already has over 14,000 pre-orders. More importantly for Seeing Machines it further demonstrates its global leadership in the DMS and OMS space as it bags its 7th Tier 1 auto supplier.

Nick DiFiore, SVP and GM Automotive commented: “We are delighted to expand our customer base with such a globally capable Tier 1 supplying a highly innovative OEM. I expect this to be the first of many collaboration opportunities as we together target new business across the fast expanding interior monitoring market.

“Having articulated our detailed embedded product strategy late last year and launched our OMS roadmap soon after that, receiving this order affirms both our strategic and technology direction, and our continued leadership position in the DMS market.”

However, investors are really awaiting official announcement of wins with the likes of Toyota and Honda before popping open their magnums of Piper-Heidsieck Cuvée Brut magnum.

The writer holds stock in Seeing Machines.

 

 

 

 

 

Has Airbus consortium won Aussie contract?

I woke up this morning with a hunch, luckily nothing to do with an uncomfortable mattress, due to my subconscious putting together a jigsaw puzzle that I wasn’t aware I was even attempting to construct.

I’m wondering if the next piece of news that Seeing Machines will announce is that the Airbus-led consortium, to which it belongs, has been chosen to deliver a fleet of specially adapted H145M attack helicopters to the Aussie Special Forces.

If true, It’s not earth-shattering news but would further validate the importance of its pilot monitoring technology in the aviation sector.

In time, this technology may feature in flying cars and also spacecraft. All, additional reasons why the Battle of the Titans, may be kicked off by a bid from either Qualcomm or Intel in order to dominate the automotive space.

Quite aside from the prospects of a bumper pay-day for investors, the sheer long-term potential of Seeing Machines’ technology excites me.

Personally, I’d love to read an interview with one of the founders of Seeing Machines, Tim Edwards. As one of the visionaries behind the company he is probably best suited to explain how  eventually giving robots the ability to recognise and understand human emotions is going to change our world forever. It would be quite something if he eventually shared his insights in an article or, better still, a book.

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.

 

 

Wameja low-ball takeover by Mastercard

Well done holders of Wameja who held onto this stock and who have received a bid from Mastercard, albeit at a very low-ball price of 8p, well short of its 20p valuation from FinnCap. That is the price of holding only a minority interest, I guess.

Holders should hold on for the time being for 2 reasons:

  • 1) They won’t lose 0.5p a share as the offer price from market makers is currently 7.5p,
  • 2)  I noted the wording in the RNS today: “In the absence of a superior proposal” the bid has been accepted. There may be a slim chance Visa could come in to frustrate the process and set off a bidding war.

I hope long term holders of WJA as well as readers of my blog made some money out of this  stock, as Wameja was mentioned on Safestocks as a takeover play. However, it would be remiss of me not to acknowledge that FinnCap analyst Lorne Daniel put me onto it with his excellent analysis.

Lessons for Seeing Machines

There are lessons from this for private investors (and even management) in Seeing Machines, I believe.

Firstly, Lombard Odier, which holds 23.45% has accepted the Wameja offer. I do hope Seeing Machines is eventually taken out at a healthier premium. However, at its current price it remains vulnerable, particularly as Lombard Odier, via Volantis 1798, holds a jumbo 19.9%.

This also has lessons for holders of any share; there is an opportunity cost for holding a stock for years and years in the hope of a bumper pay day.

The writer holds stock in Wameja and Seeing Machines.

 

Marketing masterstroke milks MOU

Seeing Machines managed to raise its share price today with a masterstroke of marketing; a fluffy RNS that while looking lovely on the surface had very little in terms of actual content.

Said creation mentioned a memorandum of understanding (MOU) but provided few details as to the ‘global semiconductor company’ it was with, and no indication as to the the likely timeframe for any eventual deal nor any mention of the likely monetary value (even a range would have done) of an eventual contract.

Call me a cynic (I’m actually a realist) but when after umpteen yearly fundraises, never-ending RFQs, imminent aviation contracts that have yet to materialise, missing train contracts and umpteen launches (e.g. BDMS) and partnerships (Mix Telematics and Progress Rail) that vanish into the ether, I feel I’ve paid the high admission fee charged by the Realist Investing Club.

To be fair, I’ve witnessed a lot of shenanigans from a wide variety of stocks over the years. Possibly it has left me bitter and twisted. Moreover, most of the instances quoted above pre-date the present senior management of Seeing Machines.

I love See’s tech (as much as I understand it – that is a joke for you tech geeks out there) but am sadly cursed by an inability to sacrifice my journalist sensibilities in the pursuit of profit. Nuts, eh?

Why MOU now?

What perplexes me is this: why mention a MOU now, yet provide no details as to the party it is with, nor indicate the likely size of the eventual contract and a date by which it is likely to be signed?

Perhaps it is super smart marketing, big tease before delivering the details. If the contract is signed soon, great: get a double share price rise from one contract. I will be happy to have my lingering fears dispelled as I watch the share price rise and count my profits. 

Yet, if this proves to be part of a well-planned, pump and fundraise operation I (and many PIs) will be sorely tempted to do an El Jefe and scream: “Bring me the head of Paul McGlone” — while berating its nomad Cenkos for allowing such an RNS to be released.

In short, I’d have preferred an RNS that announced an actual contract/license deal with a monetary value attached (even a vague value range). This would have enabled the share price to sail past 5p, particularly if it put to bed any need for a further fundraise. For the record, I’d certainly not be keen to see an eventual contract announced in a month or two alongside a fundraise, in classic AIM style.

I’m saying this publicly as I hope Seeing Machines responds by soon putting my fears to rest. I want greater transparency. I want further details of this MOU. Better still, quickly provide an RNS that gives something more solid: details of a contract worth millions.

The writer holds stock in Seeing Machines

5 pillars of wisdom for Seeing Machines

I noted the latest RNS from Seeing Machines re. its new hi falutin ‘3 pillars’ strategy….if you’re going to crib a marketing strategy steal from the best; Islam and/or TE Lawrence. Well done.

Strip away the technobabble and hyperbole and it appears that Seeing Machines is providing would be customers with maximum flexibility as to how they choose to use its class-leading technology at a great price, with the option to provide over the air updates. Of course, I am not well versed in the world of BS bingo so I’ve avoided any mention of ‘deep edge’.

That’s all very fine and I look forward to numerous licence deals that remove any lingering possibility of a fundraise and share consolidation. Imminently.

5 pillars

I don’t doubt the technology, just management’s resolve to deliver for private investors. I’d therefore like Seeing Machines to build these 5 pillars of wisdom into its actions:

  1. Demonstrate that management are so convinced of its future success that they use their own cash to buy meaningful numbers of shares. Especially the CEO.
  2. Greater transparency re. RFQs, BDMS, Aviation, strategy for trucks and and yes, even trains. Silence just won’t do.
  3. A reduction in BS bingo and technobabble in comms: terms like ‘low integration pathway’ etc, etc. Explain what you mean in plain English. Australians are renowned for their plain speaking so let’s have more of it. My neural processing unit will be better able to read your RNSs if you do that.
  4. Put to bed the idea that a fundraise may be needed. Stifel in its initiation note on 21st July 2020 indicated one would be needed, stating: “Key risks to our thesis include the need to raise funds; order push outs; regulatory changes; competition; and market disruption.” (Incidentally, why isn’t this note up on the Seeing Machines website for all PIs to read?)
  5. An online webinar for the results is needed. One where investors can post questions online in real time. React did this and if a tiny company like that can do it there is no excuse for SEE not doing likewise.

I should add that I still believe this technology is great and will save many, many lives. Good luck to all those at the company. Congrats on the Mercedes S launch. 

Cenkos note

For those seelievers out there, the Cenkos (house broker) note published today provided a very positive take on the latest developments, with analyst Marc Bunce commenting: “We see the launch of Occula (TM!) as an exciting development for the company with this step change in the Seeing Machines technology expected to further the gap from its peers in benchmark testing. It is the result of significant work under the radar and the announcement demonstrates confidence in the company that it has world class technology not just in DMS but also human tracking and detection. With the added offer to license for virtually any embedded or ASIC application a Tier 2, Tier 1 or OEM can think of, Seeing Machines has brought its top tier performance into easy access and affordability for all vehicles (and locations in vehicles) as well as other applications. This will undoubtedly increase its potential market share in automotive but will also no doubt pique the interest of other technology developers and integrators. Seeing Machines is therefore opening back up from a transportation focussed technology company to a human-machine interface technology supplier which could deliver further significant value to investors which is not reflected in the current share price.”

That almost reads like a ‘come and get me’ plea. There may be takers once a few more contracts are signed.

The writer holds stock in Seeing Machines

‘Covid-19 ate my bonus’

While I’m naturally disappointed that Coronavirus has induced another revenue warning at Seeing Machines, it isn’t a great surprise. That the CEO will forgo some salary (along with others) as welll as a huge bonus seems sensible under the circumstances. Well done.

I feel for those hard working employees who have been sacrificed. Hopefully, they’ll prosper in the future.

My firm hope is that the appointment of Michael Brown (Fund Manager at Volantis 1798) to the board will act as an impetus to act in the interests of all shareholders. I’m certainly bemused that after umpteen fund raises it has taken Covid-19 to impel the board to “restructure to improve its focus on profit in the three business units’. (A bit like Boris Johnson getting plenty of PPE into hospitals and care homes after Coronavirus dies down.)

What keeps me invested here is the technology and the regulation that is driving its implementation. I firmly believe Seeing Machines will bounce back when some of the delayed contracts are announced. Until that happens I will look like a mug, of course.

Also, the launch of the Mercedes S level and the Ford F-150 (featuring SEE’s tech) this year should bring a PR boost to the company. 

For any tempted to despair, I would urge them to remember these wise words from Philip Fisher: “The stock market is filled with individuals who know the price of everything, but the value of nothing.” 

The writer holds stock in Seeing Machines