Seeing Machines Ltd (AIM:SEE, OTC:SEEMF, FRA:M2Z) shares rose 11% to 4.58p on Wednesday after a record quarterly production update prompted Peel Hunt to declare that a long-predicted surge in automotive royalty volumes had materialised, vindicating the broker's medium-term investment case.
The broker, which carries a 'buy' rating on the stock, said automotive production volumes of 1.3 million units in the three months to 31 March, up 122% on the prior quarter and 259% year-on-year, validated its thesis that European safety regulation would trigger a step-change in demand for Seeing Machines' driver and occupant monitoring systems.
It noted that more than 20% of the company's entire lifetime production volumes were delivered in the single quarter, and said it conservatively expected volumes of 1.5 million units per quarter for the financial year ending June 2027, implying around $40 million of revenue that it believes should convert largely into cash.
The significance of the royalty model lies in its margins.
Automotive royalties carry gross margins of 96%, meaning volume gains flow almost entirely to the bottom line.
Peel Hunt said it believed Seeing Machines was cash generative for the first time in the quarter, and estimated that annualised cash generation from the automotive division of around $40 million leaves the aftermarket business as additional upside rather than a necessity.
The cash generation dynamic matters beyond the income statement.
The company is due to renegotiate its financing arrangements in October, and Peel Hunt suggested the improved cash position should strengthen its hand considerably in those discussions.
The driver behind the volume surge is the European General Safety Regulation (GSR), which requires driver monitoring systems to be fitted to new vehicles sold in Europe from July 2026.
Carmakers have been scaling fitment across platforms ahead of the deadline, and Seeing Machines, which holds embedded positions across multiple original equipment manufacturer programmes, has been a direct beneficiary.
Peel Hunt said it intends to review its forecasts and price target, currently set at 4.0p, in due course, given the scale of volumes now being achieved.
Not all of the update was positive. Aftermarket unit sales, covering Guardian hardware sold to commercial fleet operators, came in at 1,610 units, well below the more than 6,000 per quarter the company had previously indicated it expected to be achieving by this stage.
Peel Hunt cut its aftermarket forecasts, now projecting 9,000, 12,000 and 14,000 units for 2026, 2027 and 2028 respectively, though it noted that if the company can reach its own 6,000 units per quarter target, the division could provide meaningful additional upside to the automotive-led base case.