One of my highest conviction ideas:
Seeing Machines, if it does not become a company worth £bns, will be bought out by probably a Tier 1 supplier (think Qualcomm etc.) or an emerging OEM (you never know about Apple etc).
The price would be >£1bn (=>26p SP).
My timeframe for this is within 5 years – so by end 2025.
– Driver Monitoring Systems (DMS) mandated in EU from 2024 in EVERY car produced.
– Democratic Congress v. likely to pass Moving Forward Act mandating DMS in cars and trucks sold, again from 2024.
– Similar legislation implemented by 2024, globally.
This, in no uncertain terms, has blindsided major firms like Uber $UBER and Waymo, who put all their eggs in the full self driving (FSD) basket.
No one has had the time to develop top-of-the-range driver monitoring.
Apart from one Australian minnow.
There are a few DMS criteria absolutely essential to manufacturers:
a) the DMS cannot be intrusive
b) it must do its job, that is to detect driver distraction/fatigue events
My thread below explains why Seeing Machines is the clear market leader to me – and thus best positioned to satisfy the two criteria above.
Don’t take it from me – check out this article from THE DMS expert:
If that is still not enough, ask yourself why Qualcomm would work with Seeing Machines as the sole supplier for their DMS. Or why Ford, Mercedes, BMW etc have worked with them.
(The below photo from Qualcomm $QCOM illustrates their automotive ecosystem).
The answer is mainly Seeing’s incredible data collected from their Fleet division (over 5bn km worth).
Now to a point which people do not appreciate nearly enough: as we move closer to full self driving, driver monitoring becomes MORE important, not less.
This is because driver complacency increases, and with it the potential for distraction and accidents.
Many paint Seeing Machines as a perpetual disappointment, but it could not be clearer that their time has come.
And here we come on to valuation.
I personally have been holding Seeing Machines from an initial entry point of 1.82p a share, with some top ups along the way.
The fact they are around 500% up from my first entry does not worry me in the slightest long term. Here’s why:
Their current c. £400m market cap is peanuts compared to what they could (and arguably should) be worth. Seeing’s pricing is around $5-10 per car.
– 100m cars produced a year
– 40% market share
– 30% EBITDA margin
Seeing would earn $60-120m EBITDA = c. £45m-90m a year.
At a 15x EV/EBITDA multiple Seeing auto EV = £675m-£1.35bn.
At 20x, £900m-£1.8bn.
BTW – the market share and EBITDA margin assumptions are conservative.
Seeing has negligible debt and assuming 0 cash at the time of valuation (as it will probably be negligible), we arrive at a price range for Seeing AUTOMOTIVE of 18p-48p (with the latter far more likely).
Here is the kicker: auto is only one part of the business.
Seeing Machines believe that aviation (use in flight simulators and airplane pilot monitoring systems) could be as large a contributor as automotive to the business.
It is difficult to value aviation though given the relative opaqueness of the business – I’ll again be cautious here and assign it 25% of the value I do to auto with significant upside skew.
An overall conservative fair value per share for Seeing Machines then (based on just automotive and aviation) once the cars hit the road could be judged as:
1.25 x (18 x 0.25 + 48 x 0.75) = 50.6p (roughly 400% upside from the current price). A mcap roughly £1.9bn.
I cannot express enough, though, how much further upside there can be to this (even though I wouldn’t be too displeased with 50p a share!) Reasons:
– Fleet not taken into account
– A bidding war to get the best DMS supplier (Mobileye bought for c. $15bn at >50x net profit as an example).
– The many applications of eye tracking of Seeing’s quality; dimming a phone’s brightness when the user looks tired, for example
At current revenue multiples Seeing Machines looks very expensive.
However for the reasons above it is in fact extremely cheap – one of the cheapest I’ve seen on the small cap markets alongside 4d Pharma #DDDD (thread on this below).
I hope I’ve explained cogently why Seeing Machines is one of the cheapest and most transformative small companies I’ve seen.
The tech is there with IMO limited execution risk – a fantastic combination.
A brief overview into Seeing below:
An oversight I made in the above – I assumed 100% market penetration when that is unrealistic – 70% is probably more feasible based on the below.
The c.50p PT I set is still feasible (though less conservative) by assuming aviation reaches 50% of auto’s size, not 25%.