Seeing Machines to hit 3m cars on the road this year

Yesterday, Seeing Machines released its latest quarterly KPIs. These included very positive numbers for cars on the road with its driver monitoring tech. Indeed, I believe it is set to pass the 3m figure by the end of this calendar year, leaving Smart Eye far behind. (Literally in its rear view mirror).

The reason Iā€™m so confident of that is because production of the VW models with its tech have begun, and VW churns out over 3m cars in Europe every year, never mind globally.Ā 

Production of Seeing Machines Gen 3 Aftermarket product have also started, so Iā€™m expecting a very healthy ramp up of revenues for that. 

With auto royalties increasing, auto extensions expanding long term production figures, and Aftermarket revenues set to swell, hitting its year end forecasts seems assured. This is particularly the case as my sources confirm management are laser focused on reducing costs to ensure it hits cash flow breakeven on a monthly basis in the next financial year. 

Breakeven confirmed

Paul McGlone, Seeing Machines CEO yesterday confirmed this, stating categorically: ā€œWe have worked hard this past quarter to remove cost from our business as part of our disciplined approach and rigorous operational focus. As we see our high-margin royalty revenues increase, we reiterate we are on track to meet FY2024 expectations and achieve a cash break-even run rate during FY2025.ā€

Certainly, house broker Stifel seems very confident. Yesterday, its analyst Peter McNally put out a note summarising the positives:

  • ā€œThe highlight of Seeing Machines Q324 KPIs (Jan-March ’24) are Automotive production volumes which are up 51% or more than 105k to c.313k in just three months (+80% y/y). This is welcome news after a still healthy but slightly slower Q224 and is likely to affect the shares positively, in our view.
  • The news comes with further reiteration from the company that it is on track to meeting FY24 (to June) expectations and continues to expect a cash flow break- even run rate during FY25. We make no changes to estimates as we approach year end but see this as positive given its main competitor recently pushed out its breakeven potential target by up to six months.
  • The shares remain one of our top picks within the sector as we approach regulatory mandates for all new vehicle types in the EU. We think investors should take advantage of the current price given the shares trade at 4.1x EV/ Sales for FY24E or 3.1x for FY25E. Buy.ā€

He maintains his target price of 15p. 

Iā€™m still confident that with news of more contracts very likely, the share price has a lot further to rise before the end of June.

The writer holds stock in Seeing Machines.

Seeing Machines wins A$125m Volkswagen contract

Seeing Machines (AIM: SEE) has announced that it has won an initial A$125m contract with a ā€˜leading German automakerā€™, confirmed by broker Cenkos and rival Smarteyeā€™s own analyst, as the Volkswagen Group. 

This VW Group includes many well-known car marques: Audi, Porsche, Skoda, SEAT, Lamborghini, as well as Volkswagen.

Itā€™s a win that has was first predicted here and confirms the view expressed back then that Seeing Machines is the ā€˜King of DMSā€™ (or should that be interior sensing?) with SmartEye a long way behind. The reason I say interior sensing is that SEE will deliver its FOVIO Driver and Occupant Monitoring System (OMS) for cars hitting the road in 2024.

Given that A$125m is only the initial lifetime value, and historically the initial amount is eventually revised upwards, I expect the actual lifetime amount will be multiples of this. However, that will depend on successful deployment over a number of years. 

Apparently, Seeing Machines now has an auto-order pipeline of roughly A$325m with 8 OEMs. Yet, with another A$1bn of RFQs still being finalised, I consider it very likely that Seeing Machines’ order pipeline will reach A$1bn in 2022.

Itā€™s news that will dismay all its competitors, particularly Smarteye. Indeed, some investors in Smarteye appear to be abandoning ship as the share price is down 12% as I write. However, the smarter ones may be swimming towards Seeing Machines on todayā€™s news.

Iā€™m expecting a lot more positive news announcements from Seeing Machines over the next 2-3 weeks that should produce broker upgrades, so bookmark this website.

The writer holds stock in Seeing Machines

Long live the King of the DMS

In a recent note from Redeye, its analyst commented that whoever wins VW or Toyota in the second half of the year will be ā€˜King of DMSā€™. He seems to think it may be Smart Eye, whereas Iā€™m convinced it will be Seeing Machines that wins both.

I also believe Smart Eye will soon suffer the embarrassment of Volvo choosing Seeing Machines for its 2021 flagship XC90ā€™s DMS.

Certainly, after a successful fundraise Smart Eye looks ā€˜strong and stableā€™ but as the British electorate knows only too well, the truth will out. Propaganda eventually has to give way to reality. That time has arrived for Theresa May and will very shortly arrive for Smart Eye. Tick tock.

Enough of analogies, Smart Eye even as number 2 will have its share of the cake that SEE doesnā€™t want. China is a big market and I wish it well there. I just hope Chinese consumers donā€™t take a ride in Bytonā€™s M-Byte when it launches later this year ā€” it features SEEā€™s superior DMS.

I also believe that the BMW X5 and Audi A8 will revert to Seeing Machines – for as the Beatle song Drive My Car, could have said:Ā  ā€˜Using a DMS at up to 37mph is all very fine, but I can show you a better timeā€™.

In the auto world premium means ā€˜the bestā€™. In a very competitive market Audi and BMW canā€™t afford to look like chumps v. Mercedes when it comes to safety. That is why auto OEMs are telling, yes telling, Tier 1s to use Seeing Machines technology.

Some will naturally dispute what Iā€™m saying. Still, let those with ears to hear, hear.

The writer holds stock in Seeing Machines.

SEE is worth over Ā£1 a share

Ridiculous as it might sound, when Seeing Machines is currently 4p a share, I believe its intrinsic value is even now well over Ā£1 a share. This is because it will continue to dominate the automotive driver monitoring niche for the next few years at least.

Anyway, hereā€™s my thinking in a nutshell. Iā€™ve based my valuation on auto alone as I think that is the real driver of value with SEE (excuse that pun!).

In his note on January 16th Jean-Marc Bunce, analyst at house broker Cenkos, revealed: ā€œSeeing Machines has a far more conservative approach to announcing automotive revenue visibility that its competitorsā€.

In the note he pointed out details on the deals already done. I’ve outlined my thoughts on them here:

  • OEM 1 [General Motors] ā€” Supercruise will be rolled out to entire range of Cadillacs (some 350,000 cars by end 2021). Thereafter, Iā€™d expect it to go into most of GMs 10m cars.
  • OEM 2 [Mercedes] ā€” Programme is just for its flagship S Class saloon car, equivalent to 5% of the total cars produced.
  • OEM 3 [BMW] ā€” stated minimum contract value of USS$25m. However, BMW sells 2.3m cars a year and Fovio chip will be rolled out across the entire group.
  • OEM 4 [Ford] ā€” F-150 is a phenomenal earner for Ford and last year Adam Jonas, the famous Morgan Stanley analyst, stated the franchise could be worth more than Ford itself. It has been estimated that Ford will is planning to produce around 1m a year of these in the future. I expect Ford will also roll it out across other car models in due course. Note that Ford produced 6.6m cars in 2017.
  • OEM 5 [Byton] ā€” relatively small volumes but Iā€™d expect them to grow and other premium electric cars to put Fovio into their offerings.

Imminent wins

By the end of this financial year I expect SEE to have announced wins with FCA, Volkswagen and Volvo with Toyota and probably Honda following shortly after.

Alternatively, you can gain a sense of the value of Seeing Machines auto business by looking at the macro picture. Assume 70% of cars have DMS by 2022, and SEE have at least 50% of that market, with estimated global car volumes of around 110m in 2022. If SEE received US$20 a car (blended average of Fovio selling at US$30 a chip and software at US$10) that would deliver revenues of approximately US$770m a year.

If Gen 2 Fovio can maintain pricing at US$30 a car, revenues would be nearer US$1.1bn a year. EVERY YEAR!

Then, were SEE to be sold for a Mobileye-type valuation of 42x revenues it would be worth a minimum of between US$32bn to US$46bn. Note that Mobileye sold for US$15.3bn.

Now discount that back for execution risk, meteor showers etc and even the meanest industry player would probably pay at least US$5bn (Ā£3.6n) for its strategic value and future cash flows this year. That is about Ā£1.50 a share from its current 4p.

I know some will say that is totally unrealistic. Still, the figures are there if you dig. It has happened before to shares with far less real value than SEE.

Takeover

But donā€™t worry, I anticipate that long before 2022 Seeing Machines will be bought by a huge company that does see the potential here. In any case, when SEE announces a couple more huge OEM wins (before the end of June) the price should start to appreciate substantially.

So why hasn’t it happened already? Well, I think the market has yet to catch up with reality. But the aroma of coffee is wafting inexorably towards its nose and it will wake upĀ very, very soon.

Colin Barnden, Lead Analyst at Semicast Research wasnā€™t keen to be drawn on the exact valuation of Seeing Machines but did explain: ā€œWhat is clear to me is no one is following the DMS market (the big investors still believe in autonomous driving at Levels 4 and 5). This will change soon enough and CES was a big step in that direction. Certainly the car OEMs are in no doubt. I think the delays have come about from the OEMs taking longer to decide which T1/T2 to use, and then rolling DMS out much faster than had been previously thought. All will be clearer by June.ā€

My fears of a low-ball bidder getting SEE on the cheap have now receded substantially, given the accelerating take up of its camera-based DMS into cars. Any such bid, if publicly acknowledged, would surely just ignite a bidding war.

The writer holds stock in Seeing Machines.

Seeing Machines secures premium German car manufacturer

Seeing Machines (AIM: SEE) has today announced that it has won a contract with a premium German auto manufacturer in conjunction with a major Tier 1 auto manufacturer.

This is a further striking endorsement of its Fovio Driver Monitoring technology, which is already in the new Cadillac CT6’s Supercruise feature – the car was launched by General Motors this autumn in the US.

The awarded models are scheduled for mass production in 2020. My own guess is the manufacture is probably Mercedes. If it is, the tech is likely to debut in its top of the range S series, which is scheduled for a relaunch in 2020.

MotoroidsĀ wrote an interesting article about the Mercedes S ClassĀ 2020/21 a few months back.

However, it could equally well be Volkswagen with whom Seeing Machines have been working ā€” they exhibited together at CES in 2017,Ā  or even BMW as there is some evidence to suggest Seeing Machines have been working with them.

What is more important than the actual name of the manufacturer is how much money it is likely to bring into this very undervalued small cap tech play in one of technologies hottest sectors; semi and fully autonomous driving.

This is what Seeing Machines had to say: ā€œAccording to previously given guidelines, this may be considered a Medium value program (from A$10M-A$25M revenue) based on the initial included models and lifetime volume projections, with the potential to become a Large value program in time (>A$25M revenue). Ā It is worth noting that volume projections can change materially, up or down, and as is typical in automotive industry contracts, there are no guarantees beyond engineering milestone payments.ā€

For me, this contract from another of the worldā€™s leading car companies establishes that the Fovio Driving Monitoring system is best in class. Moreover, given the contract could be worth as much as 50% of Seeing Machines current market cap, it looks very undervalued.

Certainly, Seeing Machines seems very confident, as Ā Nick DiFiore, General Manager of Automotive at Seeing Machines, commented:Ā “We are proud to be awarded this benchmark DMS program from both an OEM and Tier 1 with state-of-the art requirements.Ā  Their confidence in us is a testament to the leading-edge nature of our FOVIO DMS technology, which is the culmination of years of innovative development and hard-earned Automotive application expertise by our team. Ā We look forward to delivering this leading-edge DMS program and further delivering our new FOVIO platform products to our growing Automotive customer base worldwide.ā€

Lorne Daniels, analyst with house broker FinnCap,Ā believes that Seeing Machines is now the “go-to supplier for DMS in automotive”.

InĀ a note published today,Ā DanielsĀ wrote: “Euro NCAPā€™s recent announcement mandating DMS as a key criterion for vehicle safety has sharpened the timeline and focus for OEMs; it takes years to design a model and if they want a 5-star rating after 2020 they will need to integrate a good DMS. Fovio is proven, reliable and quite literally, already on the road; a natural choice for the global automotive industry.”

The writer holds stock in Seeing Machines.

Seeing a CES bonanza for Fovio

This yearā€™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 Machinesā€™ 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 yearā€™s CES.

  • Boschā€™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: ā€œWeā€™re seeing a groundswell of demand in the industry for our Driver Monitoring technology.ā€

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 ā€˜ludicrousā€™ mode if he didnā€™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 Ā£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 (Ā£84m) in 2019 with pre-tax profits of A$22m (Ā£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, Iā€™m convinced Seeing Machines is set to rise steadily.

However, donā€™t take my word for it. Do your own research and then make your own mind up.

The writer holds stock in Seeing Machines