Tag Archives: Seeing Machines

Seeing Machines making progress

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Seeing Machines produced a positive trading update today and I firmly believe that this company is very undervalued at its current price of 3.25p.

What was lacking was hard detail on contracts won in fleet and more detail on its share of the auto spin-off. Yet, if only half of the fleet trials convert and the auto spin-off goes ahead smoothly it should multi-bag by Christmas.

The company is making great strides, communication as to how well it is doing is increasing and Iā€™m confident that positive news flow will drive the share price forward to reflect the growth in business.

Some of the following update is based on a very recent, exclusive interview with CEO Ken Kroeger. In it he was at pains to stress that heā€™s going to be making a big effort keeping investors informed about developments. For example, Seeing Machines is in the process of revamping its website and he explained: ā€œWhat I am trying to do is create an ongoing, regular conversation with investors through our website. The Seeing Machines website will become the portal for investors and if they want to drill down into the companies they can.ā€

Heā€™s slightly hamstrung by the fact that trials of such an innovative product take time to convert and confidentiality is an issue that often prevents disclosure.

I can see that the company is light years ahead of where it was only 3 years ago. It is now converting its computer vision based IP into commercial product and starting to promote these product brands/companies: CAT, Guardian, Auto, Nucoria etc.

Yet, that is probably of scant consolation for shareholders who have seen the share price sink over the past few months.

From my most recent conversation with him and todayā€™s RNS, Iā€™ve put together the following:

Caterpillar

As the update explains, here Seeing Machines is moving ā€œfrom a low-volume, high-value hardware business to an annuity and licensing-based revenue, high volume, lower unit cost product business model. Aside from the A$21.85m one-off Caterpillar licence fee that will boost revenues for the current financial year, there should also be recurring and growing revenues from product and services. These amounted to US$420,000 from Jan-March 2016 and are expected to grow in the quarter from April-June 2016.

That said, excluding the one-off revenue for this financial year Seeing Machines expects ā€œother sales and service revenue to be lower than the last full year.ā€

Fleet

This product became available to customers in September 2015, without a formal launch and minimal marketing. The salesforce, comprising mining experts, eventually had to be replaced by road transport experts.

Since then, it has formally launched an improved product (with front facing camera) at mining shows: 3 in the US and 2 in Australia under the ā€˜Guardianā€™ brand.

Following the launch of Guardian, it has built up a very solid pipeline of product assessments with potential customers, ā€œover 30 around the worldā€ according to Kroeger.

To give some idea of the volumes he’s talking about he added:Ā ā€œIf we successfully converted all of those assessments weā€™d probably have somewhere around 120,000 – 150,000 vehicles in those fleets.ā€ Moreover, some of them are apparently very big companies.

While he doesn’t expect a 100% conversion rate, he did reveal thatĀ these assessments are going ā€œreally wellā€. In addition, Caterpillar has also made its first fleet sale.

Kroeger also explained: ā€œWe are currently designing the second generation solution, again, with VSI and other external expertise. It will be lower cost and modular in design so that it can be sold as a complete stand-alone solution as it is now or it sold as a companion or add-on to an existing telematics solution by only using some of the module (camera, HMI, image processing and not the geo-positioning or telecommunications elements that could be present in an already-installed telematics service); again being lower cost as result.

ā€œThe logic in this approach is that we are working with large telematics companies to provide them an affordable technology that they can sell to their customers in high-volume at the lowest possible cost while still providing a direct to market, Guardian solution that is affordable to operators that require the complete technology solution due to not having a telematics solution in their vehicles or where the telematics solution is not compatible with ours. The telematics suppliers are seeing a lot of consolidation and are looking for means of differentiation. Our discussion with them are focused on turing them into Ā an additional, high volume, channel to market with their existing customers.ā€

For those seeking names, Kroeger added that he was currently working with 2 global telematics companies (ā€œwith over 1m connected trucks combinedā€) and that, if possible, heā€™d hope to provide more detail in the next Fleet update ā€” which I expect to be in a couple of weeks.

Naturally, investors may be frustrated that he canā€™t put those names out immediately. Still, if he says it is happening you can be certain it is. What he canā€™t control is the marketing sensibilities of huge multinationals that prefer to be named at a time of their choosing.

Thereā€™s also been progress in Auto, Aerospace and Rail but I donā€™t have much to add to the RNS.

Understandably, the lack of detail is a frustration, made harder to bear by the downward moves in the share price. However, Iā€™m very confident that continued patience on the part of investors will be amply rewarded over the next few months.

Of course, there is no substitute for your own research and investors should always take care not to invest more than they can afford to have tied up for a year.

The writer holds stock in Seeing Machines.

Seeing Machines gunning for automotive market with spin-off

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Seeing Machines (AIM:SEE), the Australian software company specialising in eye-tracking technology using innovative algorithms, looks set for a significant uplift in its share price with confirmation that it is launching a spin-off in the US dedicated to serving the automotive sector by the end of June.

The stated intention is that the company will follow the Mobileye trajectory and eventually IPO in the US, a prospect which is likely to have both institutions and shrewd investors clamouring for shares over the next few months.

Despite recently announcing a maiden interim profit, its share price had been held back by concerns that it would need to raise more funds in order to serve demand for its world-leading technology.

However, in an exclusive interview with Ken Kroeger, CEO of Seeing Machines, he revealed that the company is set to raise between US$50m to US$100m setting up a spin-off that will focus exclusively on the auto industry and develop a new hardware module.

This should produce 3 main benefits:

  1. It will take development costs out of the overall business.
  2. Enable Seeing Machines to move up the value chain by developing hardware (which will be manufactured by a third party). So, instead of getting $10 a car profit, it will be able to get between $25 to $35.
  3. Enable it to work with more Tier 1 suppliers and OEMs.

As part of this Seeing Machines has signed a memorandum of understanding with Takata, that officially ends its exclusivity deal with Takata.

The new company will be called ā€˜Fovioā€™ and is expected to be launched by the end of June this year.

Ken Kroeger, CEO of Seeing Machines explained: ā€œIt will be a separate, US-based company. It will have about 40 people and take about 35% of the cost out of the parent company. The US company will own 100% of the Australian subsidiary that would house around 40 employees. Seeing Machines, and the current shareholdersĀ  will not have to reach into their pockets and write a substantial cheque but will own a substantial portion of that business.ā€

When pressed as to what ā€œsubstantial portionā€ meant, he explained that is how he had to refer to it.

He added: ā€œThat business would be completely set up to start its march towards an IPO on the US board, mirroring Mobileyeā€™s journey. It would have a separate board, separate management and we are in the process of recruiting a CEO in the US.ā€

As to the backers, he revealed: ā€œThe investors are at the big end of town (sic), we already have term sheets and they range from automotive OEMs, through the silicon companies into some of the other strategic industrial partners that we want.ā€

The new module is expected to come to market in late 2018, early 2019.

Until then, Seeing Machines will be continue working with Takata on delivering its software, as Kroeger explained: ā€œThe good thing is that we continue working with Takata. It is a new agreement not a divorce, so in the interim we will keep on delivering with Takata.ā€

Seeing Machines and Takata will be working on another 15 models for the same OEM that it has been working with to deliver a model that will be go into production late this year to be on sale next year. In addition, it is working on another 3-4 requests for quotations expected to happen this year.

That OEM is rumoured to be General Motors and the model that will first use Seeing Machines driver monitoring software, as part of it Supercruise feature, is said to be the Cadillac CT6.

The writer owns shares in Seeing Machines

Seeing Machines driving forwards

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AIM-listed Seeing Machines is making great inroads into its target markets, yet the year end figures alone donā€™t really give much indication of this. Hence the price at around 4.5p has remained static. However, at this level it appears undervalued.

For the year to June 30, 2015 revenues grew 20% to A$21.2m, although this Australian company produced a thumping loss: A$10.2m (approx Ā£4.7m), which was significantly up on the previous yearā€™s A$2.7m. Moreover, cash outflow rose to A$21.5m, offset by a fundraise of A$10.8m, leaving net cash of A$14.4m.

Still this loss has to be seen in the context of a growth company that is investing heavily in R&D, sales and marketing while making good progress in cracking markets for its innovative driver safety software products aimed at 6 key global markets.

These markets are:

  • truck and mining equipment
  • commercial haulage fleets of trucks
  • cars
  • rail
  • aviation and simulators
  • consumer electronics.

Mining

It has successfully cracked the truck and mining equipment market with an alliance with Caterpillar, the largest manufacturer of such vehicles. Post the year end it announced that it had signed a US$17.5m deal with Caterpillar whereby Caterpillar will take over responsibility for manufacturing, marketing and sales of its DSS off-road product. In addition, to this payment (US$9m of which Seeing Machines will receive by January 2016), it will also receive royalty fees for DSS hardware, software licensing, monitoring and analytics services.

This is quite an achievement given the state the global mining industry is in and shows that even in markets hit by macroeconomic turmoil, the benefits of its products are unquestionable and it can deliver growth.

CommercialĀ fleets

Caterpillar will also distribute its ā€˜Fleetā€™ product, which was launched in April. Given that the company is estimated to have over 3m vehicles in this area it bodes well for future growth in this segment.

The fleet product is essentially a cheaper version of its caterpillar driver monitoring system designed specifically for trucks, busses and other commercial fleet vehicles. It provides drivers and supervisors with real-time notice of when a driver is either tired or distracted. It has already made its first order for 750 units in South Africa and has put in place distribution networks around the globe.

Cars

It’s perhaps the development in the car industry that are really going to grab headline over the next couple of years and hopefully increase its profile among the general public. Here it has been working with a Tier 1 automotive safety supplier Takata. Its first product in this market is likely to be launched at the Los Angeles Car Auto Show in November. It will be in the Chevvy Super Cruise from General Motors, which will be on sale in 2016.

In addition, it is working with a number of other auto-manufacturers on safety and entertainment systems so the prospects for further launches appearĀ excellent.

The quality of its partnerships is also quite staggering for a Ā£45m small cap. In the area of aviation it is working with Boeing to develop a pilot monitoring system. One has been installed in a Boeing Flight Services 737 Flight Simulator at the Brisbane International Airport. They are also working with a subsidiary of Caterpillar, EMD to develop a train driver monitoring system. Lastly, in consumer electronics they are working with Samsung on televisions that can monitor audience reaction. Most companies would probably be viewed as a bright prospect working with these alone.

Analyst view

Lorne Daniel, analyst at house broker finnCap has forecast a small adjusted pre-tax profit of A$0.8m in 2016 on revenues of A$43.2m. Revenues are anticipated as falling slightly in 2017 to A$43.2m with an adjusted pre-tax loss of A$9.1m as the exceptional boost from the Caterpillar deal falls out of the figures. However, he sees the business taking off in 2018, forecasting sales of A$65.8m and an adjusted pre-tax profit of A$8.3m.

Despite the company investing almost Ā£15m a year, it appears fully funded for profitability. Of course, given the scale of its ambition it is just possible that it could raise more to finance another ā€˜transformationalā€™ partnership.

When I spoke with Lorne Daniel he was certainly very enthusiastic about the company. Indeed, in a note issued on September 22 he estimated the mid-term value of the company at Ā£480m based purely on a sum of the parts valuation on the prospects for the Caterpillar/DSS, OEM auto and fleet businesses.

Iā€™ll quote his concluding paragraphs to explain how keen he is on the company. ā€œThis is not a blue sky valuation. There is little if any credible competition in its markets, and revenues are already flowing from them. There evidentially little risk in the CAT business; there is a strong pipeline for the automotive OEM opportunity; and straightforward execution risk in the commercial fleet business. We have ascribed no value at all to the rail, aviation or consumer electronics market opportunities at this stage.

Even discounting the above Ā£480m valuation of a mature business by 75% for the risk and time needed to achieve these sales levels would suggest a Ā£120m value or 12p per share target price at a minimum.ā€

It is hard not to agree that Seeing Machines is terribly undervalued, particularly if you look at the valuation of a peer called Mobileye. This US-listed, Israeli company develops vision-based advanced driver assistance systems providing warnings for collision prevention and mitigation. Its systems appear less impressive than Seeing Machines and fortunately non-competitive, although the company is already making solid profits and is valued at US$10bn.

Prospects

Seeing Machinesā€™ technology is proven, as are the deal making skills of its management. Coupled with the realistic prospects for the future this seems as close to a multi-bagging one-way bet as you could wish for.

Of course, it may get taken out by a bigger company long before then. Market Eye certainly has the cash to do it and acting soon would mean paying a fraction of the price it would cost to buy this Aussie innovator in a couple of years.

Alternatively, given the progress this company is making in actually enabling computers to see and gauge human reactions, it would be no surprise if Google or Apple already have their eyes on Seeing Machines.

The writer holds shares in Seeing Machines.

You should always conduct your own research before investing.