Is it time to take a second look at Seeing Machines Limited (LON:SEE)?
Based on the disconnect between the share price (down 12% in the year to date) and operational performance, the answer is most definitely yes.
Please don’t take this as encouragement to buy, I’m merely going to walk you through the fundamentals of a business that is well funded and at a long-awaited inflexion point.
The problem is nobody seems to be taking a great deal of notice.
The last set of results were key. Included in the statement was a section detailing plans for the company’s driver monitoring systems (DMS), which is able to work out whether the person behind the wheel is awake and alert.
Queing round the block....
It revealed that Seeing Machines now has customers queuing around the block to use its set-up in the first generation of semi-autonomous vehicles. At the last count, 16 companies had hooked up with Seeing Machines, whose speciality is eye tracking and facial recognition.
The big brand companies are already in bed with a firm called Mobileye. I say a firm, Mobileye is valued at US$9bn on minimal revenues.
Its market worth is derived from the fact that it has the go-to collision avoidance technology that watches and maps the road ahead. In other words it keeps the vehicle safe and between the white lines.
The Seeing Machines technology is essentially a Mobileye-style system that looks into the cab rather than out to the road. And in new semi-autonomous vehicles Seeing Machines DMS monitors whether the driver is ready and able to take the controls at any given point in the journey.
The DMS could be deployed in the same numbers as the Mobileye device.
And like its forward-facing peer it is integral to the future of semi-autonomous cars and is being used by major manufacturers … yet Seeing Machines is worth US$71mln in London and Mobileye is valued at US$9bn in New York.
As the Americans would say: go figure.
Let’s take another look at the annual results statement issued a month ago and zone in on the section outlining the future of the DMS.
In that, Seeing Machines says it has hired Silicon Valley-based Woodside Capital to assess the options for the technology.
DMS technology as a separate company?
A very strong option is to hive off the DMS technology into a separate company.
It is understood there is interest from at least one world-leading American auto-maker, which is ready to come in as a cornerstone investor in this new entity.
At the same time a raft of household-name technology companies are vying to get their name on the shareholder register too - along with a large Chinese auto firm and an Asian components manufacturer.
I’m spit-balling here, but an initial valuation of US$80-100mln isn’t out of the question for the DMS business.
And that certainly isn’t being picked up in the market capitalisation of Seeing Machines (remember it stands at US$71mln currently).
Now analysts reckon the stock is being held back by a perception it will tap the market for funds as is the wont of small technology firms.
But, this is unlikely given the cash Seeing Machines currently has on the balance sheet, or will be paid over coming years as part of a deal it has with Caterpillar for its driver fatigue monitoring systems.
At the last count it could call on US$35mln, with around half of that figure in payments staged over the next four years.
And that’s before it generates any further revenues from the driver fatigue business, or deals in the automotive industry.
One reason for the falling share price can be traced to Australia, where the Seeing Machines eye-tracking technology was first developed.
We are told by market makers here in the UK that one of the Aussie superannuation funds may be selling down a 6-7% stock position.
There are no regulatory filings to back up this assertion, but it would appear to have the ring of truth.
So let’s sum up: Seeing Machines is sitting on cash, has an enterprise value of US$36mln and technology that’s conservatively worth US$100mln even at this nascent stage (and a lot more as the traction in the car industry grows). In other words this is definitely one for the watch list.