Is Seeing Machines set to be taken over within 6 months?

Following today’s interview with Seeing Machines CEO Paul McGlone, I’m convinced that Seeing Machines is set to soon follow Veoneer and be the subject of a bidding war, most likely within the next 6 months.

The main driver is its dominance in the automotive driver monitoring space, where it is set to win the lions share of a multi-billion dollar market over the next year. (My view is it wins at least 70% of the RFQs).

McGlone was very candid in the interview and the key part I’m going to refer to starts from around 13 minutes in. There he outlined the problem winning most of the DMS/OMS market brings to a relative minnow:

“In my opinion, this is the beginning of the consolidation in interior sensing. Not the end, the beginning. I doubt very much whether there will be 3 or 4 majors in this space 2 years from now.”

“One of the challenges we have right now is that with almost a billion dollars of RFQs, which is more than we’ve seen in our entire life, on our table today, and we expect another billion next year, we have a really important decision to make. Do we pursue it all, do we get selective and strategic about what we pursue? What are the investment implications for either choice?

It is very, very clear: if we pursue it all and we win at our historical run rate of 40 plus per cent it is a fantastic return on investment. So, over the next 2 quarters we’ll be looking in great detail around the volume of RFQs, the requirements in each of them
the cost of doing them and the return on investment. That is the big decision for us to make. We don’t have to make it now but we’ll be working on it over the next 2 quarters.”

I personally think the opportunity is so huge that even if Seeing Machines wanted to pursue the opportunity offered by automotive alone, it won’t be allowed to do so. However, I think they’ve already decided to sell if the price is right.

By the way, I think that price will be over £1. Looks silly when the price is 10p but huge contract wins haven’t yet been announced. When they are the price will rise and £1 will eventually look cheap.

Qualcomm grabbed Veoneer from the hands of Magna because it sees the strategic importance of active safety in automotive to its future business.

Seeing Machines is of even more importance as its technology is the jewel in the crown of active safety (an area that has grown in importance as the automotive industry comes to realise that mass adoption of fully autonomous vehicles is decades away). While car computer systems will increasingly carry out more tasks for drivers they’ll still need to ensure drivers are paying sufficient attention to take over when required.

Moreover, Seeing Machines technology, which at its height goes far beyond mere eye-tracking and helps computers to assess the cognitive load of a human (including whether they are incapacitated or not), has many uses that go far beyond passenger automotive. This includes trucking and uses in aviation (training simulators, ground control tracking and planes). Shipping and flying cars will surely follow and spacecraft would logically use it eventually.

Yet, its tech has uses far beyond transport: in XR headsets, mobiles, medical devices and robots. In all these markets Seeing Machines technology has the potential to deliver multi-billion dollar revenues to its owner.

That’s why, although I expect it to be valued partly on a forward order book in automotive, its dominance in the trucking and nascent aviation markets will also increase its intrinsic worth.

Crucially, it should also obtain a healthy premium for its strategic importance in developing future markets.

That’s why, although Qualcomm must be red hot favourites to take it over, there is the likelihood that another chip company (eager to spoil the party) or even a private equity firm (awash with dry powder and seeking to acquire valuable assets) will make a bid.

I also think a bid from Apple or even Alphabet is a strong possibility. Each will know its strategic importance to their future plans and be prepared to outbid Qualcomm for it. For example, after the money spent on Waymo for little real return it might make sense for Alphabet to hedge its bets and spend a few billion dollars to acquire a guaranteed golden goose like Seeing Machines. Equally, why should the forthcoming Apple Car not use its own DMS (from Seeing Machines) and use that technology in its own computer chips to power its headsets, mobiles and computers?

Of course, I could be completely wrong. After all, I once thought driver monitoring would be one of the hottest areas in automotive and look how that worked out.

The writer holds stock in Seeing Machines.

Waymo good news for Seeing Machines: part 2

Interest from US investors in Driver Monitoring is set to take off as it is becoming clear that it offers the means to prevent the deadly death toll on US roads.

Adam Jonas, Morgan Stanley’s star auto analyst, published a note on 24 March, 2021, entitled: ‘What’s on My Mind? Motor Vehicle Safety — A New ESG Frontier’.

In that note he cited a recent report from the National Safety Council (NSC) in which it detailed that despite an historic fall in miles travelled and safer vehicle designs, the number of US motor vehicle related deaths in 2020 hit a 13-year high of 42,600.

Also, according to the study, for every US road death there are 114 ‘medically consulted injuries’, resulting in nearly 4.8m vehicle-related injuries last year.

That represents a huge, avoidable cost to its society, which the NSC calculates at a staggering US$474bn, or roughly 2.2% of US GDP.

Given that cost, Jonas writes: “We believe such tragic statistics may accelerate a range of policies (at the Federal level and otherwise) that may in turn accelerate changes of key ADAS technologies in the US fleet.” He adds: “The average age of a car in the US is over 12 years, amongst the highest of any developed nation in the world. We have long discussed the potential for taypayer/policy actions to accelerate the scrapping and replacement of US vehicles.”

His takeaway is that, while there has been plenty of focus on the climate-related impact of today’s vehicle tech: “We see scope for greater attention to be paid to life-saving/ADAS/autonomous related technology.”

Fortunately, Seeing Machines is at centre of this life-saving technology and interest from US investors is clearly accelerating. 

Moreover, as more and more vehicles are driven in the US with its tech (Ford F-150 and Mach-e, as well as GM Cadillacs) interest will only grow.

Waymo

This will of course be helped by Seeing Machines publicly acknowledging its involvement and RNSing such news. For example, as Colin Barnden of Semicast Research confirmed in an article this week, it has supplied its tech to Waymo.

This blog first wrote about Seeing Machines supplying Waymo back in 2018, still it is about time we had it confirmed via an official RNS — especially given the announcement by Colin Barnden. 

Regardless, I expect Seeing Machines to be rerated imminently (not a word beloved of its investors) as more US investors and analysts realise it is not a jam tomorrow stock but a jam factory gearing up production.

The writer holds stock in Seeing Machines.

 

       

 

 

         

     

    

     

    

    

    

   

Seeing Machines wins Apple for Back-up Driver Monitoring

According to my sources Seeing Machines will be supplying its new Backup-driver Monitoring System (Guardian BdMS) to Apple and is very likely to win GM Cruise, possibly Waymo also.

In the typically low key fashion in which Seeing Machines delivers good news to the market the announcement was put out more like a product release than an RNS. Hidden away in the third paragraph it stated: “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.”

This is outstandingly good news for the AIM-listed minnow and means Silicon Valley has followed global car manufacturers (GM, BMW, Mercedes and Ford) in recognising Seeing Machines’ driver monitoring technology as best in class.

Apple, in typical fashion, has not replied to any of my emails on this subject but its secrecy in such matters relating to Apple Car is well known.

As stated in my previous blog post, I still expect wins with FCA and Toyota to be announced in due course.

The writer holds stock in Seeing Machines.

Seeing Machines: it’s all about timing

I was slightly surprised at the timing of the revenue warning this week from Seeing Machines, as it has been clear for some time that Fleet has not being doing as well as expected with delays to Gen 2 and no news of business via Mix Telematics. 

It was a point that was succinctly made in the note from John-Marc Bunce, analyst at house broker Cenkos, when he wrote: “The news released yesterday regarding the fleet business is clearly disappointing, especially considering the issues with the Gen2 were first raised in May 2018”.

Given that Fleet (and Rail) have been perennial disappointments there will be a lot of pressure on Chief Executive Ken Kroeger to sacrifice someone. This might go some way to assuaging the anger of investors who’ve seen paper profits evaporate.

Yet, for me, it’s the timing of this announcement that’s of paramount importance. For by smashing the share price down It conveniently clears the way for a low ball bidder to come in and look like a white knight to investors.

I know that such a bid won’t immediately deliver anywhere near the full value that resides in this business – given the importance of its DMS technology to increasingly autonomous cars.

Still, many long-suffering shareholders would probably jump at the opportunity to sell at a very decent profit. Moreover, it ought to ignite a bidding war.

New contract wins

In any case, let me confirm that it is my belief that Seeing Machines:

1) Is set to win auto contracts with Toyota and FCA (news on the former is overdue).

2) Will be supplying its technology to one or more of these companies: Apple, Waymo and GM Cruise. (They’ll want more advanced systems than the non eye-tracking ones used by Uber, I’m sure).

3) Will see its tech used by Canadian Pacific Railway.

The writer holds stock in Seeing Machines.

Seeing Machines is worth US$10, even ÂŁ10, but not 10p

At the Automated Vehicles Symposium (AVS) held in San Francisco last week, one presentation made was by the National Transportation Safety Board (NTSB), about the first Tesla crash involving Autopilot. The NTSB said that “steering wheel torque is a poor surrogate measure” for driver attention. In a tweet highlighting the presentation, Colin Barnden, Lead Analyst at Semicast Research commented: “This only really leaves camera-based DMS to fulfil driver engagement function.”. In a subsequent tweet Colin also identified a possible scenario where Waymo buys Seeing Machines, maybe even in a 12-18 month timeframe, for US$10 billion.

Here’s Colin’s reply in full to my asking about his thinking behind these tweets and the jaw dropping valuation.

Colin Barnden

The NTSB presentation at AVS. That’s a game changer. If you are a transport executive and you value your freedom, you don’t ignore NTSB recommendations. This even applies to anyone with the first name Elon too.

Level 3 is starting to gain traction so Waymo are looking like they have called the handover problem incorrectly and L3 is possible after all. Time will tell on this. L2/L3 is where the volume will be in my view, at least for the next decade.

Robo-taxis may get investor and press attention, but the volume will be in the mass market. Seeing Machines is the classic ‘pick and shovel’ play, the tech can go almost anywhere in transport applications that humans and machines interact. It certainly isn’t obsolete.

Price… who knows? Could be higher, depends how desperate the bidding war gets (see Sky as a good example). Remember what I wrote to you last week “I can see ten bucks a share persuading the Board to sell up soon, or even ten pounds, but not pennies. That would be stupid, and they (the Board of Directors) aren’t”. [This refers to us discussing privately the likelihood of Seeing Machines’ management accepting a low-ball bid in the next few months].

The current market cap simply reflects that the market is clueless to what SM has achieved. The company isn’t clueless, the executive management are whip smart. The market is coming to them (and Smart Eye too) it just needs patience. Maybe even as little as 12-18 months.”

You can follow Colin at @semicast_res

You can follow me, Chris Menon, at @Penforjustice

The author holds shares in Seeing Machines

Toyota or bid announcement?

The good news for investors in Seeing Machines is that I’m hearing from multiple sources that Seeing Machines is set to win a contract with Toyota next.

Apparently, it’s the only driver monitoring system (DMS) that is being specified in multiple Tier 1 bids – as was the case with the big BMW win recently. If true – and I see no reason to doubt my sources’ information – it just goes to further reinforce the global domination of Seeing Machines’ Fovio DMS in the auto industry.

Bid coming?

For that reason, I’m not surprised that there are now 10 market makers for the company on the London Stock Exchange, up from 4 a year ago. Most recently, Berenberg have started broking them. The better news is that I think this German bank may be acquiring shares for a company that plans to bid for Seeing Machines.

I could be wrong about that last assumption: Berenberg may be buying for a German fund. Nevertheless, various sources are warning of an imminent low ball bid – somewhere around 25p-30p a share for Seeing Machines. 

Some of my sources believe it is a Tier 1 auto supplier, others discount that theory. Interestingly, when asked about this in a previous interview back in March, Ken Kroeger did tease: “I agree it is either someone like that who can see the full value or a really diverse Tier 2 or Tier 1, as opposed to the OEM.”

While traders might be impressed by that figure, anyone with any knowledge of the auto industry and even an average understanding of Seeing Machines proven technological global dominance in driver monitoring systems shouldn’t be.

If such a bid should materialise I’ve been told by multiple sources that certain chip manufacturers (Intel/Nvidia, Xilinx and Qualcomm) would most likely be prepared to offer a lot more than a measly 30p. So I fully expect a competitive bidding situation to materialise if the rumour turns out to be fact.

Seeing Machines house brokers haven’t issued any upgrades in a long while. Still, based purely on old figures from Canaccord Genuity’s Caspar Trenchard note of Jan 9, (which excludes any figures for the huge Ford win as well as the big BMW win) it must be worth at least 59p a share. That is 30 times forecast revenues for 2019 of A$79.5m = 59p a share.

You could even argue that SEE should be on a higher multiple, such as the 42 times revenue multiple that Intel paid for Mobileye when it went for US$15.3bn. That would equate to roughly 83p a share for Seeing Machines. (This obviously ignores any value for Fleet, Rail and the Caterpillar business).

Yet, the strategic importance of Seeing Machines to the future of transport (never mind vision for robotics) will have been noted far and wide. In such a situation, I’ve been told that the chip companies are often prepared to pay up without months of haggling over the odd US$1bn. It’s small change to them when global domination is at stake.

Even Apple and Alphabet (parent of Waymo) can surely see the sense in DMS, so for what is petty cash for them they could also come in.

The writer holds shares in Seeing Machines.