Seeing Machines wins A$21m Japanese auto contract

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 I’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: “We believe today’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.”

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: “The ‘cumulative initial lifetime value’ 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.”

Global leadership

It’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, can’t last much longer.

Seeing Machines very dominance is the reason I don’t believe it will be allowed to remain independent much longer. With every auto contract won the importance of Seeing Machines to Qualcomm’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: “Clearly M&A is going to be part of Qualcomm as we accelerate those non-handset businesses.”

With SEE’s auto-win rate increasing the prospect of an actual A$1bn pipeline isn’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 doesn’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, I’d value Seeing Machines’ Auto division at US$5bn minimum, Fleet about the same. Aviation isn’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

Waymo good news to come

I’m convinced Waymo has chosen to use Seeing Machines Backup Driver Monitoring System (BdMS). (As predicted by “The notorious blogger” a few months ago).

This follows hints on social media, great reporting from US journalist Amir Efrati at The Information about the incorporation of a BdMS in Waymo ‘driverless’ vehicles and the reluctance of Waymo to refute suggestions that it is using Seeing Machines’ eye-tracking technology.

Oh, and let’s not forget an RNS issued by Seeing Machines on September 11th announcing its first BdMS win, which stated other customers were on the way.

Here’s the sentence from that RNS: “Seeing Machines has signed an agreement with one customer and is in advanced discussions with a number of companies at the forefront of autonomous vehicle development.”

In addition, I’m expecting much more positive contract news on the OEM front in the first quarter of 2019. Plus I’m looking forward to the launch of the Byton M-Byte SUV featuring the Fovio chip in late 2019 in China (US and Europe in 2020). What a great looking car it is.

Funding concerns

Now the share price is in the doldrums and fears of a dilutive fundraise are part of the reason.

Re. funding concerns, I think Seeing Machines will probably need more cash to service this growing demand by the end of June 2019 at the latest.

Note that Jean-Marc Bunce, analyst at house broker Cenkos, stated in a note published on September 19th that there was no immediate cash requirement and that SEE had a “clear cash runway through FY19.”

Still, he did add: “Our model indicates a cash requirement of A$15-20m in FY20, based on these projections.”

My own thinking is that when more OEMs officially come on board, cash requirements to fund that work will be needed sooner, more likely by April 2019.

I don’t see this as a negative, provided there is little or no dilution to existing shareholders. Indeed, Seeing Machines has to grab as much OEM land as possible next year.

I believe it will succeed in the doing the latter.

Funding options

Personally, I don’t think existing institutional investors will be keen to support yet another annual fundraise before more auto OEM contracts are announced. An alternative would be to trawl round new investors but why dilute existing investors with such an unimaginative move?

A CAT-style deal for fleet, with a chunky up-front payment (say A$30-50m) would be a better option.

Alternatively, a very imaginative option might be to raise some debt via a convertible bond. I noted that the new CFO, Luke Oxenham has experience of raising cash via bond issuance. Moreover, with big company experience I’m hoping he will be willing to consider big company actions.

Logically, there must have been a reason this sentence was included in the official RNS: “Luke has substantial experience of integrating business planning, business performance and capital modelling and of accessing various sources of capital from the debt and equity markets.”

Tesla used convertibles in 2014 to raise US$2bn. Twitter also recently used it to raise US$1bn according to Reuters.

So Luke, how about this? A 5-year convertible bond with a conversion price of 8p at around 6%–7% interest. (Okay, I admit the idea came from someone much smarter than me.) I’d prefer a 20p conversion price!

The writer holds stock in Seeing Machines.

Seeing Machines is worth £2bn

I know a few investors thought I was ramping when I wrote in a previous blog post ‘Seeing Machines wins BMW contract worth between US$125m to US$250m‘ that this AIM-listed minnow was worth £2bn (89p a share).

My reasoning is simple: it’s currently the leading specialist supplier in the global automotive market. (Read that slowly and ponder the implications as automotive is one of the hottest tech sectors in the world).

You want proof? Fovio, Seeing Machines’ world leading driver monitoring technology is currently being used by General Motors in its Super Cruise system for semi-autonomous cars, and is set to go into production in Mercedes and BMW cars within the next couple of years. 

Note that even before the BMW win, house broker Canaccord Genuity affirmed Seeing Machines was worth 21p in note dated 9th January. Analyst Caspar Trenchard also indicated that “the Fovio ‘platform’ technology might well be of specific additional worth to a corporate acquiror.”

Increased regulation is driving this adoption and many other car manufacturers and Tier 1s are queuing up to use Seeing Machines over the next year. I fully expect Subaru, VW, Audi and a host of others to follow in due course. (Tesla really ought to be banging on Seeing Machines’ door to get their kit into its cars.)

Lorne Daniel

Lorne Daniel, Head of Research at FinnCap, is a well respected tech analyst who has previously compared Seeing Machines to Mobileye, which was bought by Intel for US$15.3bn. 

I needed a sanity check to ensure I wasn’t deluding myself as to its intrinsic value, so I asked Lorne Daniel a simple question: “Do you think a £2bn valuation on Seeing Machines is unrealistic, given its increasing dominance in the auto OEM market?”

His reply: “Absolutely it’s a realistic valuation. The end markets are enormous and time and again the company is delivering on its promise with very big companies.”

Of course, I can imagine many readers moaning, “But its price is less than 5p!”

Well, as Warren Buffet once famously said: “Price is what you pay, value is what you get.”

Low-ball bid

Given the fact the stock is currently languishing below 5p, my own concern is that there is a distinct possibility an opportunistic bidder may soon seek to take advantage of this valuation anomaly with a low-ball bid.

Should that event materialise, my hope is that the management and quality institutional investors, such as Herald’s Katie Potts and Miton’s Gervais Williams (who’ve been invested here for years and fully realise what it is now worth), would resist any such offer and seek a price that fully reflects its value.

After all, the likes of Apple, Google, Samsung and Tesla — not to mention a host of Tier 1 automotive suppliers (Autoliv, Bosch, Aptiv, Denso and Continental etc)— are likely to be keen to acquire Seeing Machines’ technology. 

Think about it. £2bn is a realistic valuation for Seeing Machines. Moreover, £2bn for some of these companies is money that they can easily afford to spend in order to build market share in the automotive market.

The writer holds stock in Seeing Machines.

Seeing a CES bonanza for Fovio

This year’s CES show in Las Vegas has demonstrated strong interest in driver monitoring systems (DMS), from automotive manufacturers and their Tier 1 suppliers. All good news for Seeing Machines’ Fovio division, which is fast becoming the dominant supplier of driver monitoring systems to guard against driver fatigue and distraction.

It was at CES in 2015 that Seeing Machines first showed its driver monitoring car technology with Jaguar. In addition, Seeing Machines has confirmed that Bosch, Takata and Volkswagen are showcasing Fovio tech at this year’s CES.

  • Bosch’s vehicle demonstrates new intelligent driver interaction capabilities enabled by Fovio
  • Volkswagen demonstrates a vehicle cockpit concept with integrated Fovio DMS
  • Takata demonstrates steering-wheel integrated DMS

I think it is only a matter of time before many other OEMs and Tier 1 suppliers are linked with Seeing Machines as the auto industry introduces advanced semi-autonomous vehicles, then fully autonomous vehicles.

As Mike McAuliffe, ceo of Fovio has noted: “We’re seeing a groundswell of demand in the industry for our Driver Monitoring technology.”

Tesla, Jaguar, Land Rover and Porsche are all marques that I personally think are likely to adopt its technology. For instance, Elon Musk would be in ‘ludicrous’ mode if he didn’t appreciate what Seeing Machines DMS could do to enhance safety features in his cars.

Ludicrous valuation

What is undeniably ludicrous is that this stock languishes at a market cap of £45m when it is about to crack not only the auto market with Fovio but the fleet market with its Guardian product. (Caterpillar liked its driver monitoring product for the mining industry so much it bought the whole operation in return for an upfront payment and ongoing license and royalty stream for Seeing Machines).

Seeing Machines now has only to lie back and wait for the money to roll in from the Caterpillar sales team. Similarly, holders of this stock who hold it for a couple more years should make a stellar return.

According to projections from Lorne Daniels, a well respected analyst at house broker FinnCap, Seeing Machines will deliver sales of Aussie Dollars 141m (£84m) in 2019 with pre-tax profits of A$22m (£13m). I expect this figure to be revised sharply upwards along with his target price of 12p by the end of this year.

Any lingering doubts about the take up Seeing Machines offering in the fleet space were certainly dispelled with its tie up with Mix-Telematics, a global telematics provider in late December.

Following its fundraise this month, I’m convinced Seeing Machines is set to rise steadily.

However, don’t take my word for it. Do your own research and then make your own mind up.

The writer holds stock in Seeing Machines