Tag Archives: Seeing Machines

Collins Aerospace license deal is imminent

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Itā€™s great to have confirmation that the long-awaited aviation license deal with Collins Aerospace is set to be announced imminently. Yes, really.

In a presentation to Italian investors back in November 2022, Paul McGlone, CEO of Seeing Machines, revealed that it was expected to be signed before the end of 2022. I assume the deal with Collins Aerospace was then slightly delayed while the fine details were negotiated and will be announced on or before the forthcoming US investor/analyst event on the 8th March in New York.

Iā€™d heard strong rumours a few months back of such a deal and so posted this blog back in August, since when further research has led me to conclude I was correct. However, the interview now confirms it and provides a lot more detail. For example, Paul McGlone reveals that around A$15m will be paid upfront with higher ASP and recurring maintenance fees being part of the deal. 

Collins has previously refused to comment but I assume this will now change. 

In addition, Seeing Machines is also bidding for a huge RFQ for an international airline to place its pilot monitoring technology in approximately 333 ā€˜7ā€™ series Boeing jets and 18 simulators. I’m assuming it may be Emirates but it could also be a US airline.

Itā€™s fantastic news for Seeing Machines and will finally prove the worth of the aviation business. Indeed, when officially confirmed the deal should produce numerous broker upgrades and have fund managers scrambling to buy into the stock.

The writer holds stock in Seeing Machines.

Chat GPT and Seeing Machines

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While the world is going crazy for Chat GPT, I thought Iā€™d see if this AI-powered breakthrough technology could help answer who is the global leader in driver monitoring.Ā 

Its answer to my question was revealing: 

Q. Who is the global leader in driver monitoring?

A. It is difficult to identify a single global leader in driver monitoring, as there are many companies that offer products and services in this space, and the market is constantly evolving. However, some of the leading companies in the field of driver monitoring include Seeing Machines, Smart Eye, and Eyesight Technologies. These companies develop technology that uses cameras, sensors, and advanced algorithms to track a driver’s attention, fatigue, and other key factors, and provide alerts or other feedback to help improve safety on the road. Other major players in this field include Nauto, Omnitracs, and Guardian Optical Technologies, among others.

Iā€™d give the answer qualified approval, as it at least names Seeing Machines first – although it failed to categorically confirm it as the leader – unlike Mobileye CEO Amnon Shashua who, in a recent Autonocast interview (10m), stated: ā€œweā€™re working with the leading supplier in DMS; Seeing Machines.ā€

I canā€™t help thinking of Chat GPT as a smart geek who hasnā€™t yet spent years researching this area but has managed to pick up the basic players pretty quickly. Good for general research, certainly. Although it tends to be a bit behind the times: for example, it missed the fact that Eyesight Technologies changed its name to Cipia a while back.

A takeover of Seeing Machines

I couldnā€™t leave my questioning there and so asked it to give me the AI Moneyshot answer; who will acquire Seeing Machines?

Again it provided a fascinating response:

Q. Which is the company most likely to acquire Seeing Machines?

A. As an AI language model, I don’t have access to information about potential acquisitions or the future plans of companies, and it is difficult to predict which company might acquire Seeing Machines, if any. However, it’s worth noting that Seeing Machines has partnerships with a number of major players in the automotive and transportation industries, including Caterpillar, Boeing, and General Motors, and has also received investment from companies like Qualcomm and Samsung. This suggests that Seeing Machines is a company with valuable technology and expertise in the field of driver monitoring, and it could be an attractive acquisition target for companies looking to expand their capabilities in this area. That being said, any potential acquisition would depend on a range of factors, including the strategic goals and financial resources of the acquiring company, as well as the interests and priorities of Seeing Machines and its stakeholders.

However, despite a fair general answer (albeit a bit out-of-date), those who read my previous post, Take your seat for the ā€˜Battle of the Titansā€™ will have a better idea of the likely players in a future takeover battle. 

The writer is long Seeing Machines. If you’d like to know more about how to make money from stocks he is available for long boozy lunches ā€“ provided someone else picks up the tab. Alternatively, just read this blog.

Take your seat for the ā€˜Battle of the Titansā€™

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Ladies and Gentlemen, please take your seats. The ‘Battle of the Titans’, the heavyweight takeover of the decade, is about to begin. The winner will be the champion of interior vehicle monitoring for the next decade, opening up billions in new revenue streams in vehicles while also preventing accidents. It should also be able to help robots care for us humans long after that. 

With the news that Mobileye has been granted non-exclusivity to market SEE technology in the Aftermarket sector, itā€™s clear that the company (majority owned by Intel) needs SEEā€™s driver monitoring technology to complement its Advanced Driver Assistance Systems (ADAS). It is now able to offer a one-stop active auto safety solution to its truck and bus customer base (who according to one source currently deploy over 2m vehicles). 

I’m even willing to bet that Mobileye wanted exclusivity, but Seeing Machines preferred to play the field, as it possesses the world’s most effective driver monitoring system (DMS).

Now that the dream of fully autonomous vehicles on all our roads has been seen to be just that, a reality that is decades away, DMS has come centre stage. As Colin Barnden, analyst at Semicast, astutely realised a while back: Mobileye needed DMS, the best DMS. And it now has access to it.

With Gen 3 Guardian likely to be available from Q1 of this calendar year, it opens up the possibility of a one-stop solution for Aftermarket being available in H2 of this financial year for millions of existing Mobileye customers as well as millions more truck and bus operators in Europe who arenā€™t.

As the scale of the market it will capture becomes crystal clear to players (and investors) Seeing Machinesā€™ share price should rise substantially. Explosive growth in its Aftermarket revenues will also be coupled with sizeable Auto contracts and the much-anticipated Aviation deal. Financial analysts (commonly referred to as City scribblers) will then finally start producing broker notes with spiraling upgrades, as Fund Managers pile in. Professional investors can exhibit Fear of Missing Out (FOMO) just like private investors.

Whatā€™s the timeline? Itā€™s starting now and will be increasingly apparent with every passing month. Notably, Iā€™m expecting a trading update on the 22nd of February with a US investor show on the 8th March. Not to mention some big contract news between now and June.

Battle of the Titans

It seems my ‘Battle of the Titans‘ prediction is slowly (oh, so slowly) coming to pass.

However, unlike a boxing contest, the battle to acquire Seeing Machines wonā€™t be a 2-person contest with Marquis of Queensbury rules. Itā€™s set to be a bare-knuckle bout involving strategy and multiple bidders, more akin to a contest in an episode of Alice in Borderland. As I see it, there are at least 4 main contenders:

  • Intel (majority holder in Mobileye). 
  • AMD (owner of Xilinx)
  • Qualcomm
  • Nvidia – the dark horse? 

However, lurking in the shadows are many more players who must covet the technology that Seeing Machines possesses. Some are subsidiaries of Chinese companies, such as Omnivision, but I doubt that Australia (one of the Five Eyes intelligence alliance) would allow a Chinese company to acquire such sensitive technology which could have military applications. Do the remainder have the financial muscle and nerve to outbid the above chip companies? That remains to be seen.

Once the contest really gets going, I expect one of the three ‘A’s; Apple, Alphabet and Amazon to show their hand. They have the nerve, nous and financial strength to not only outbid the above chip companies but take Seeing Machines technology to the consumer market in a huge way.

I believe that this year is finally going to be fun for holders of Seeing Machines shares. Let the contest commence.

The writer holds stock in Seeing Machines.

US$32m Stellantis win boosts intrinsic value of Seeing Machines

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The latest auto contract awarded to Seeing Machines carries ā€œan initial lifetime value of US$32M (A$45M)ā€ and brings the official initial cumulative lifetime value of the auto contracts won to US$321m. Opinions may vary as to who the OEM is, but Iā€™m confident itā€™s Stellantis, marking an impressive follow-up on an earlier contract win in June with the European headquartered car manufacturer.

Of course, followers of this blog wonā€™t be surprised to learn that the actual lifetime value of all these contracts is likely to be multiples of the so-called ā€˜initial lifetime valueā€, as car manufacturers make Driver/Occupant Monitoring a standard feature and these initial contract values expand.

Bizarrely, Mr Market hasnā€™t yet properly priced in the value of SEEā€™s stated auto pipeline, never mind its likely long term value, which Iā€™d judge to be approximately US$1bn. Seeing Machines adopts a very conservative stance on the value of its auto contracts, which also hasnā€™t helped investors understand the intrinsic value here.

It may take a short while longer before the market cottons on, so investors must remain patient. Although, the Consumer Electronics Show (CES) in early January should bring announcements that will make SEEā€™s value in automotive clearer.

Catalysts

Fortunately, there are two catalysts that I expect will make Mr Market re-evaluate SEEā€™s value in the second half of this financial year.

  1. I expect the transformational aviation license deal that has long been anticipated will soon materialise, triggering upgrades from all brokers.
  2. I expect the Gen 3 Fleet product to be available in Q4 of this financial year, enabling huge Fleet contract wins. This will also trigger broker upgrades.

Iā€™d urge all holders of Seeing Machines to have faith in their research and the intrinsic value of Seeing Machines. Never forget that price does not equal value, for as Warren Buffett noted: ā€œPrice is what you pay.Ā Value is what you get.ā€ In my opinion, at its current share price Seeing Machines is laughably undervalued.

Of course, all investors should do their own research and be prepared to suffer the slings and arrows of outrageous fortune for a little while longer. Covid, Ukraine and market jitters have previously held its share price back and, while I do fear the effects of a global recession and a possible market crash, Seeing Machines progress as a business appears unstoppable. Ultimately, a takeover will unlock the true value here regardless of overall market conditions.

The writer holds stock in Seeing Machines.

Smart Eye fairytale reaches a climax

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With the news that Smart Eye is desperately using a SEK 60m (Ā£4.8m) bridging loan to finance its business while it attempts a SEK 325m (Ā£25m) discounted rights issue, the greatest Scandinavian fairytale since Hans Christian Anderson wrote ā€˜The Emperor has no clothesā€™ appears to be coming to a dramatic climax.

It’s sad news for investors who thought that the Emperor really was the leading global provider of driver monitoring systems and who believed that the 103 design wins it has long boasted of, and still boasts of, will ever go into production.

Indeed, the press release announcing this news reads like a profit warning, as it seeks to blame Covid for its problems, stating:

ā€œThe consequence for Smart Eye has thus been that the implementation of the Companyā€™s software for DMS and Interior Sensing, as well as licensing revenues from existing design wins have been postponed. Hence, commercialization of design wins is expected to be realized later than originally estimated.ā€

Notwithstanding the massive dilution that investors will experience at the discounted rights issue, investors should really ask themselves how likely it is that Smart Eye will achieve its stated intention of a positive cash flow by the second half of 2024, given the parlous present state of its finances. 

How many public companies can you name who are forced to use a bridging loan to stay afloat?

Investors will have to wait until January 24th to find out the price of the rights issue. Given the likelihood of the price plummeting before then, they are likely to sell in droves. This is turn will likely increase the resulting dilution necessary to raise the required funds.

Of course, investors should do their own research as I freely admit that Iā€™m a long-term holder of shares in Seeing Machines — and had until a few years ago regarded Smart Eye as a serious rival.

Magna-ificent performance from Seeing Machines

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Following recent announcements relating to Magna, reinforced by analysis from CEO Paul McGlone at an investor event in London, Iā€™m confident that Seeing Machinesā€™ technology lead across, auto, fleet and aviation will soon start to be reflected in its share price.

The recent news that auto Tier 1 Magna is paying US$17.5m for the exclusive rights to use Seeing Machines technology in its rearview mirrors until the end of 2025, while also agreeing to invest up to an additional US$47.5m, just confirms its global leadership position in Driver and Occupant Monitoring Systems (DOMS). 

Crucially, the cash injection removes any concerns that Seeing Machines needs to raise cash. It is now fully funded to profitability in 2024.

The Canadian Tier 1 Magna has gone exclusive with Seeing Machines in rearview mirrors because it aims to the vast majority of that market, 100% has been suggested by one expert, as no real rival to their DOMS offering currently exists. By partnering with Seeing Machines it has a product that is apparently superior to that of its competitors in terms of price, performance, and time to market. Thatā€™s presumably why it won the huge A$125m VW contract in December 2021. 

By 2026, itā€™s likely that Magna will have won as much as 50% of the overall auto DOMS market in partnership with Seeing Machines – since half of DOMS is forecast to be delivered via rearview mirrors. Thus it will have done to its main rival Gentex what Qualcomm has done to Intel in auto. The huge VW win with Magna should have confirmed this, future wins certainly will. 

Itā€™s no coincidence that both Magna and Qualcomm have chosen to partner exclusively with Seeing Machines. These moves should be seen as part of a strategic land grab that I expect to deliver Seeing Machines at least 75% of the auto DOMS market by volume by 2026.

That is because its competitors (Smart Eye, Cipia, and Jungo) arenā€™t winning anywhere near the number or volume of RFQs that Seeing Machines is. For example, Smart Eye appears to have effectively been replaced by Seeing Machines in forthcoming BMW models. The 10 BMW models featuring Smart Eye technology are from past wins, such as the X5 (2015) and M8 (2018). 

Of course, OEMs may do some dual sourcing. Speaking to Smart Eye last week its CEO Martin Krantz tentatively said that Smart Eye ā€œwill probably be in future BMWsā€. I wish him luck but I donā€™t think it is going to be a threat to Seeing Machines going forward. 

Indeed, investors need to beware of looking in the rearview mirror at market share unless they want to crash their prospects for significant financial gains. For those paying attention to the road ahead, itā€™s Seeing Machines that is in the fast lane to market dominance. 

Over the past year, Seeing Machines states that it has won 80% of the RFQs for which it has bid. Iā€™m confident it will maintain that win rate with the $A1-2 billion of contracts for which it is currently bidding.

Looking at design wins, Smart Eye currently boasts 94, while Seeing Machines has 120. However, even this figure fails to reflect the latterā€™s dominance. Not all of Smart Eyeā€™s 94 ā€˜winsā€™ made it into production, in contrast, every Seeing Machines design win has hit the road. 

Iā€™ve long admired the Smart Eye people – not least for their PR bravado – but it canā€™t blind me as to where I should invest my hard-earned dough. Iā€™d also be doing readers a disservice if I didnā€™t state what I honestly believe. 

Following the Seeing Machines investor presentation Friday, (when the video is posted I will provide a link) Iā€™m very confident that an inflection point has been reached.

Increased margins

From now on license revenues for vehicles hitting the roads will begin to ramp up for Seeing Machines. This is a very high-margin business as the main costs have already been borne in the development phase. It currently has a pipeline of A$395m in auto but this is expected to grow substantially over the next few years on the back of further wins.

Similarly, in aftermarket more large enterprise customers such as Shell are coming along. These margins for selling the product and the monitoring service are much higher than selling indirectly via distributors.

It should also be noted that Seeing Machines Gen 3 Guardian will be launched by the end of this financial year, opening up the prospect of huge scale-up in Fleet sales. The product has apparently been re-engineered to reduce costs yet will be better, with automotive-grade additions and much faster install times. In addition, there is huge money to be made from the service element of monitoring the drivers.

Thus, now there is clear visibility of increasing revenues and cashflows with SEE set to make huge profits over the next few years.

In addition, Iā€™m still confident that a lucrative license deal will soon be struck to deliver Seeā€™s pilot monitoring technology into the cockpits of aircraft. Being early is the same as being wrong but I hope by Christmas Iā€™m proven right.

Bids coming

As readers know, Iā€™ve long believed that SEE will face a near-term bid. To that view some have argued that such is its success that it really doesnā€™t need a takeover to prosper, unlike some of its rivals who hope to be saved by one. Iā€™d certainly agree with the assessment that Seeing Machines could perfectly well prosper as an independent.

However, even if Seeing Machines isnā€™t ā€˜up for saleā€™, it doesnā€™t mean that it cannot be bought. A wise man recently told me: ā€˜Great companies get bought NOT soldā€™. Well, I believe Seeing Machines is a great company.

Ask yourself, how badly must some company want what Seeing Machines has? Its technological lead, data, and market leadership would take years and many billions to replicate for even a company of the stature of Google, Apple, or Amazon. If you had the money (and they do) why wouldnā€™t you just buy it?

If Magna is prepared to pay millions for the exclusive use of SEE technology for a couple of years, why wouldnā€™t they want it permanently? Qualcomm, AMD, Intel, and Nvidia also have reasons to enter a bidding war when the starting gun is fired. Indeed, even Gentex does if it wants to win future DOMS rear-view mirror contracts and protect its market share from rivals such as Magna.

Thereā€™s even the argument that a consolidator might want Cerence and Seeing Machines to create something very special.

Value stock

As legendary value investor Irving Kahn taught, investing is an art rather than a science but I think were he alive today, heā€™d take an interest in Seeing Machines as it ticks many of the criteria he looked for in an investment.

The good news for investors is that they can now sit back and enjoy the ride. It has been substantially de-risked, which is why Cenkos upgraded to 25p last week. I expect the other analysts following the company to do likewise in short order as the contracts and license deals roll in. 

The writer holds stock in Seeing Machines.

Will Seeing Machinesā€™ likely Nasdaq listing elicit a bid?

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Rumours that Seeing Machines is planning a dual listing on Nasdaq gained further credibility with the attendance of CEO Paul McGlone at a recent shindig organised by house broker Stifel to promote that very idea to clients. The question is, might a dual listing be the catalyst for a bid?

Itā€™s long been known that a dual listing on Nasdaq has been under consideration at the Aim-listed tech company for a number of years. At a previous investor meeting held online on 24th November 2021 Paul McGlone stated (in answer to the question: ā€˜Are there any plans to move to a US market?ā€™): ā€œIt is in our plan, itā€™s only sensible that we talk about it. I do imagine that we will end up there but I want to see some additional momentum before we flick the switch on that particular transaction.ā€

With Seeing Machines coming to dominate interior monitoring with its class-leading DMS/OMS system, it appears that time is drawing close. Indeed, some argue that such a listing would be guaranteed to increase its US profile and enable it to secure more backing from US tech funds.

Stifel served as joint bookrunner on an $85 million dual-listing Nasdaq IPO for Renalytix AI back in July 2020. The price tripled shortly thereafter but has since come right back down. More successful was GW Pharmaā€™s dual listing back in 2013, before it was eventually acquired.

Mobileye IPO

A more appropriate comparison is the Nasdaq IPO of Mobileye, floated for US$5.3bn in 2014, bought by Intel in 2017 for $15.3bn and now in the running for a potential $50bn spin-off IPO, backed by Morgan Stanley.Ā 

Examining the prospectus for the original Mobileye IPO in 2014, indicates that Seeing Machines is set to be a superior business. Not only is it dominant in auto but also in fleet and aviation. Moreover, its robust technology has applications well beyond the transport sector.Ā 

Expected date of dual listing

While it appears that no firm decision has been made by Seeing Machines regarding a precise date for a dual listing, I believe that the much-mooted plan is moving inexorably forward.

My sources indicate that (barring a market meltdown) it is most likely to happen around Spring 2023, by which time Seeing Machines is expected to have achieved several milestones that will have more US tech funds eager to jump in. These milestones include:

  • An order pipeline of $A1bn in auto;
  • A fleet operation that has proven it can scale, boosted by the third generation of its Guardian product, which will be easily incorporated into telematics products for trucks and buses;
  • The launch of a dedicated aftermarket division to sell its Guardian product to niche manufacturers of buses and trucks, with monitoring services sold to their customers; and
  • A licensing deal in the aviation sector.

I also believe that there is an outside possibility that increased momentum in auto and fleet, with Seeing Machines pretty much set to win every contract it contests, could bring forward the date.

Will QC gatecrash the party?

The question is, will the host of chip companies who want SEEā€™s IP wait until its value has been boosted by a Nasdaq dual-listing IPO before swooping? Moreover, will Qualcommā€™s Christiano Amon risk another chip company, or one of the three Amigos (Amazon, Alphabet and Apple) eating his lunch? It doesnā€™t seem likely. The Arriver acquisition proved Qualcomm fights for want it wants.Ā 

Given the crucial importance of Seeing Machines vision technology to Qualcommā€™s Snapdragon Drive automotive stack it seems logical that he will act quickly, to forestall any rival acquiring this important strategic partner. 

Sector ripe for consolidation

The sector is certainly ripe for M&A deals. Even peripheral DMS players are starting to be bought. In fact, one took place late in 2021, with Lattice Semiconductor acquiring computer vision company Mirametrix. The latter has a rudimentary DMS and, according to unnamed sources, went for a ‘huge multiple’ in a private deal. You can see its offering here: https://ir.latticesemi.com/investor-overview/presentations

Note the slide detailing some of the consumer uses for its technology entitled ā€˜Consumer Challengesā€™ ā€” it may ring a (door)bell for some investors. The wide range of markets in which SEEā€™s technology can be used, aside from its transport applications, is one reason it is an attractive target.

Smart Eye would probably love to be taken over as would Cipia. However, SEE is the demonstrable market leader and will be the one that all the major players covet. 

As ever, if youā€™ve found any value in this article please consider making a donation to a charity of your choice.

The writer holds shares in Seeing Machines.

A$23m Stellantis win for Seeing Machines

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It seems likely that the OEM win announced today by Seeing Machines is for Stellantis, using Magna’s driver monitoring system (DMS) in a mirror.

In any case, given the minimum lifetime value is A$23m, it is a pretty safe assumption that it will actually end up being at least three times that figure.

Cenkos close to upgrading

Broker Cenkos has maintained its 20p price target but admits it really could be lowering its discount rate and bumpting up that target price, given Seeing Machines’ accelerating win rate that is leaving competitors far behind.

Here’s the concluding comment from Marc Bunce, the Cenkos analyst covering Seeing Machines: “This new automotive DMS award comes less than two weeks since the last which further supports our view that Seeing Machines win rate and market share in automotive Driver Monitoring Systems are increasing. It is also reassuring to hear that this view is now also publicly supported by Nick DiFiore with his expectation for 40% market share by volume now marginally ahead of our expectations which represent around 38.5% by volume to 2030. We iterate our Buy recommendation and 20p valuation and note there remains significant upside in this from reductions in our discount rate, small increases in our Automotive market share expectations, increases in our cautious aftermarket expectations and the addition of aviation (we will incorporate aviation when we get visibility into meaningful contributions).”

Certainly, when Seeing Machines announces the wins I referred to yesterday I expect Cenkos to upgrade.

The writer holds stock in Seeing Machines.

Takeover thesis maintained as Seeing Machines dominates global driver monitoring market

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Despite the ongoing market falls, my sources (note the plural) indicate that Seeing Machines is winning ā€˜everything it goes forā€™. In particular, Iā€™m expecting confirmation of another sizeable contract win in Japan, another huge one in the US and plenty of very positive Fleet news. Thus, my conviction that Seeing Machines will soon attract a bid remains as strong as ever.

Further contract wins

My sources indicate that another Japan win announcement is very, very close. I hesitate to use the word ā€˜imminentā€™ but you get the idea. In addition, Iā€™ve heard a whisper that GM has awarded a huge Lidar contract for Ultra Cruise and thus expect that Seeing Machines will soon be getting confirmation of a huge contract. I anticipate this to occur within a couple of months.

I’m also expecting Seeing Machines to win Toyota and announce further expansions with Ford and Stellantis in due course. Lastly, the significance of the recent win of Renault via Qualcomm’s 3rd Generation Snapdragon cockpit platform shouldn’t be ignored. What it indicates is that Seeing Machines will be in every car that has Qualcomm’s system.

In addition, I hear Fleet is doing very well and there will soon be some significant announcements regarding aftermarket sales and a further partnership that should enable it to scale up the introduction of its driver monitoring technology in Europe to comply with the forthcoming safety legislation. 

Clearly, despite the gyrations in its share price, the business is clearly going from strength to strength. That is certainly a claim made by company executives themselves in recent interviews, such as this one with Nick Di Fiore who heads up automotive but also this video with CEO Paul McGlone. It is backed up by leading independent industry analyst Colin Barnden of Semicast Research, as well as financial analysts from a growing number of brokers; Cenkos, Panmure Gordon, Berenberg, Stifel and Peel Hunt.

In short, my thesis that Seeing Machines takes 75% by value of the global DMS/OMS  auto market remains fully intact, a market that could be worth A$1bn in 2025. That figure ignores the market represented by trucks, trams, trains and aviation – global markets in which Seeing Machines is set to dominate.

I, therefore, maintain that a near-term bid for Seeing Machines is very likely – regardless of the state of the overall stock market. (Regarding macro projections, Iā€™ve been a long-term fan of Albert Edwards insightful analysis and would urge every investor to follow him. He has long been castigated as a ā€˜bearā€™ but in my opinion he is a realist, and investors are now coming to realise that.)

Seeing Machines is the global leader in one of the hottest areas in a very hot tech sector. Itā€™s partnering with tech behemoths who are led by very smart people. They wonā€™t pass up the opportunity to acquire Seeing Machines. Though they could well face competition from private equity players with a trillion dollars of dry powder.

Peel Hunt note on M&A activity

This very week Peel Hunt issued a note entitled, ā€˜Accelerating UK bid activityā€™, written by Charles Hall, Head of Research and Clyde Lewis, Deputy Head of Research. Although it focuses on companies in the FTSE 250, I think there is a read-across for quality companies on AIM. 

Hereā€™s an extract from the note:

ā€œA classic indicator of a disconnect between short-term concerns and longer-term opportunity is when non-equity investors start to buy the assets. This is clearly happening, with 10 bids for FTSE 250 companies progressing currently. This is unsurprising given the de-rating of the FTSE 250, with the overall index-18% YTD and 80% of the members down on the year. This has driven heightened interest from overseas and private buyers. There have been 14 proposed and announced bids in the past six weeks, adding up to Ā£21bn of equity value.ā€

Discussing the themes for investors to consider, the note goes on to state: 

ā€œThe pace has clearly accelerated after a slow start. There is a clear focus on hard assets, with most of the businesses being acquired having strong market positions with clear and lasting cash flow credentials. The mix of financial and corporate buyers reflects the strength of balance sheets, access to funding, and the ability to look through a tough economic environment. Weaker sterling should also increase the appetite from overseas.ā€ 

Iā€™d urge investors to do their own research as Iā€™m not Nostradamus, just a journalist. That said, itā€™s undeniable that investors are still ignoring the oh-so-clear value to be had in Seeing Machines.

Cheer up

With all the terrible things going on in the world Iā€™ve found that watching interviews with the legendary journalist and political analyst Anthony Howard has greatly cheered me up this week.

If that doesn’t float your boat, why not watch Queen performing We are the Champions at Live Aid in 1985. It’s a song that will make a fitting anthem for investors in this company when it is bought for billions. I dedicate it to all investors in Seeing Machines and its hardworking and talented staff.

The writer holds stock in Seeing Machines.

Seeing Machines wins A$21m Japanese auto contract

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Seeing Machines has won its first Japanese car manufacturer, rumoured to be Honda, in a deal initially worth A$21m (US$14.6m). The cars will go into production in 2025.

The actual headline figure for the win is highly conservative and is likely to end up many times bigger as the car manufacturer rolls out the technology across an ever-increasing number of models. This is what happened with BMW, Ford and Mercedes and Iā€™m confident it will repeat here. 

Japan turns to Seeing Machines

The really important learning from this win is that SEE has finally cracked Japan, after years of hard work. Marc Bunce, an analyst at broker Cenkos, says: ā€œWe believe todayā€™s win is a first step into the Japanese market and that the cost and performance advantages of Seeing Machines software and embedded systems approach, will enable it to win further business with Japanese OEMs.ā€

Hence, this will prove to be the first of many contracts with Japanese car companies that will confirm Seeing Machines position as the global leader in driver/occupant monitoring (DMS/OMS).

SEE already has a confirmed (conservative) auto pipeline of US$240m, although in all likelihood it is likely to be double that. As Bunce explains: ā€œThe ā€˜cumulative initial lifetime valueā€™ of these award wins now up to A$345m/US$240m which we believe is predominantly based on conservative minimum production commitments for initial vehicle models. However, with actual production volumes usually much greater than minimum commitments, and the technology already being seen on models beyond the initial award win, we believe the likely lifetime value of these awards is already considerably larger.ā€

Global leadership

Itā€™s now clear, as predicted here 4 years ago, that Seeing Machines is set to take over 75% of the global DMS market. Ironically, it seems that the market has de-rated its main rival Smart Eye based on this assumption without re-rating Seeing Machines. It is a position that, while frustrating to those holding the share, canā€™t last much longer.

Seeing Machines very dominance is the reason I donā€™t believe it will be allowed to remain independent much longer. With every auto contract won the importance of Seeing Machines to Qualcommā€™s ambitions in the auto market become more obvious. Given that Qualcomm was keen to swoop on Arriver I expect the time is approaching when Christiano Amon will again reach for his wallet to try and secure the global leader in DMS/OMS.

Qualcomm CEO Cristiano Amon let the cat out of the bag in a recent interview, in which he discussed Qualcomm’s diversification strategy. He confirmed, after boasting of its US$16bn auto revenue pipeline and talking about the Arriver purchase: ā€œClearly M&A is going to be part of Qualcomm as we accelerate those non-handset businesses.ā€

With SEE’s auto-win rate increasing the prospect of an actual A$1bn pipeline isnā€™t very far away. If you also include revenues from its fast-expanding Fleet and Aviation divisions, Seeing Machines is a must-have for a chip company that wants to diversify its revenue stream.

SEE is almost totally de-risked, with earning visibility becoming clearer every month. The future cashflows from auto, fleet and aviation are going to be huge. Moreover, with the continuing investment in its intellectual property to ensure its systems remain far ahead of any rival, it has created a strong moat to fight off any would-be competitors for the foreseeable future.

Takeover target

By the end of its current financial year, all this should be clear to even the most sceptical investor but to savvy industry players, such as Cristiano Amon, it must be obvious now. Amon doesnā€™t strike me as the kind of man who would ever allow a competitor to eat his lunch – as Magna can bear witness.

Only Alphabet, Apple or Amazon would have the financial muscle to separate Qualcomm from its intended target. I’d add in Tesla as a wild card. Elon Musk loves pulling surprises and Tesla needs a decent DMS. Instead of blowing tens of billions creating an in-house solution he might just wake up one morning and decide to buy SEE.

Blue sky valuation?

As to valuation? Well, Iā€™d value Seeing Machines’ Auto division at US$5bn minimum, Fleet about the same. Aviation isnā€™t as advanced but it’s a huge market that it is developing, so say US$2bn. In total, its intrinsic value is approximately US$10-12bn today.

Alternatively, If someone has the nous to offer 50p a share and SEE accept, well done. In 2 years they could probably float the company for 5x to 10x that. 

Some will doubtless say I’m talking nonsense. But the same naysayers said that 4 years ago when I predicted Seeing Machines would grab a 75% share of the global DMS market.

The writer holds stock in Seeing Machines