seeing machines 061217...seeing machines* 6 december 2017 the eyes have it 3 investment case prior...
Post on 19-Aug-2020
1 Views
Preview:
TRANSCRIPT
*Denotes corporate client of finnCap . This research cannot be classified as objective under finnCap research policy. Visit www.finncap.com
The Eyes have it CORP
On the back of the recent extremely positive newsflow, the group has raised an additional A$61m from equity to accelerate the development of the technology product and platform, expand global infrastructure and provide working capital headroom. Crucially, the contract award from a second OEM demonstrated that Seeing Machines (SM) has a credible DMS solution for the global automotive industry and is likely to win a significant share of a huge global market. Equity investors are now beginning to appreciate the scale of the opportunity and the true value of this business. To date, enthusiasm and valuation have been tempered by a relatively heavy investment programme for AIM and an obvious funding gap with likely dilution. We adjust our forecasts to reflect the post-placing investment; however, it clears that final hurdle and opens a path for SM to achieve its remarkable potential. We also highlight upside from a potential re-rating.
Automotive OEM: We are confident of long-term success in the huge automotive OEM market following the contract from a second OEM, evidencing that SM is a leading player in automotive DMS and is likely to secure a significant share of the imminent global deployment of this technology. Regulatory and safety bodies are encouraging DMS adoption in new vehicles by 2020 and the three-year design period should see other contract announcements in FY 2018.
Fleet: The aftermarket business is steadily growing through direct sales and through channels (regional distributors and telematics partners). With few competitors, it is beginning to work with the insurance industry and building a base of recurring high-margin monthly revenue. The working capital requirement is being reduced by factoring, and the costs of hardware and monitoring are being sharply cut by improved technology, increasing margins and the return on investment. Fleet is on track for profit from FY 2020, thereafter supporting the OEM business to its own profitability.
FY 2018 will be heavily H2-weighted. We expect c.70% of FY 2018 revenue from Fleet and a further 70% of that to come in H2 due to the inherent bias in the model exacerbated by the introduction of second-generation devices in H2.
Achieving the TP: This funding removes the last hurdle to SM achieving its global aspirations and accordingly we retain our TP despite the 33% dilution.
Seeing Machines*
6 December 2017
Ticker SEE
Price 5.6p
Target Price 12.0p
Upside 113.0%
Market Cap* £122.7m
Market AIM
Sector Tech Hardware & Equipment
Net Cash* A$80.0m
Shares in Issue* 2,191.7m
Next Results Interims in February
What's changed From To
Adj. EPS (FD) -1.6c n/c
Recommendation
Target Price 12.0p n/c
*post placing Share Price Performance
Source: Thomson Reuters
% 1M 3M 12M
Actual -8.2 +79.9 +36.3
Company Description Development of innovative vision-based human/machine interfaces Analyst:
Lorne Daniel 020 7220 0545 ldaniel@finncap.com Sales:
Rhys Williams 020 7220 0522 rwilliams@finncap.com Stephen Joseph 020 7220 0520 sjoseph@finncap.com Tony Quirke 020 7220 0517 tquirke@finncap.com Sunila de Silva 020 7220 0521 sdesilva@finncap.com Malar Velaigam 020 7220 0526 mvelaigam@finncap.com Sales Traders: 020 7220 0531
STX 73240
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
Data
Sales (A$m) 33.6 13.6 40.6 81.9 141.0
Adj EBITDA (A$m) -1.4 -25.5 -30.2 -12.6 25.1
Adj PBT (A$m) -0.9 -26.3 -32.6 -15.2 22.1
Tax rate (%) nm nm 0 0 nm
Adj EPS (FD) (c) -0.1 -2.2 -1.6 -0.7 1.0
DPS (c) 0.0 0.0 0.0 0.0 0.0
Ratios
EV/Sales (x) 3.7 9.3 3.1 1.5 0.9
EV/EBITDA (x) n/a n/a n/a n/a 5.0
P/E (x) n/a n/a n/a n/a 9.8
Yield (%) 0.0 0.0 0.0 0.0 0.0
Cash flow yield (%) -5.1 -13.4 -26.1 -16.7 11.8
EPS growth (%) 94.0 1,895.4 25.2 57.2 245.5
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Dec Mar Jun Sep Dec Mar Jun Sep Dec
Seeing Machines* 6 December 2017 The Eyes have it
2
Key Financials
Income Statement Cash Flow
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
Sales 33.6 13.6 40.6 81.9 141.0
Gross profit 27.3 0.1 16.0 43.4 88.9
Operating expenses -28.7 -25.6 -46.2 -56.0 -63.8
Adjusted EBITDA -1.4 -25.5 -30.2 -12.6 25.1
Depreciation/Amortisation -0.9 -1.3 -2.5 -2.5 -2.8
Adjusted EBIT -2.3 -26.8 -32.7 -15.1 22.3
Associates/Other 0.0 0.0 0.0 0.0 0.0
Net interest 1.4 0.5 0.1 -0.1 -0.2
Adjusted PBT -0.9 -26.3 -32.6 -15.2 22.1
Adjustments -0.7 -2.3 -2.0 -2.0 -2.0
Reported PBT -1.6 -28.5 -34.6 -17.2 20.1
Taxation 0.0 -1.1 0.0 0.0 0.0
Tax rate (%) nm nm 0 0 nm
Reported earnings -1.7 -29.7 -34.6 -17.2 20.1
Average no.shares (FD) 981.7 1,264 2,011 2,186 2,186
Adj. EPS (FD) (c) -0.1 -2.2 -1.6 -0.7 1.0
DPS (c) 0.0 0.0 0.0 0.0 0.0
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
EBITDA -1.4 -25.5 -30.2 -12.6 25.1
Net change in working capital -5.0 8.9 -3.0 -10.0 -15.5
Other items 0.0 0.0 2.0 3.0 13.0
Operating cash flow -6.4 -16.6 -31.2 -19.6 22.6
Cash interest 1.4 0.1 0.1 -0.1 -0.2
Tax paid 0.0 -1.1 0.0 0.0 0.0
Capex -2.5 -2.2 -7.5 -5.0 -5.0
Free cash flow -7.6 -19.9 -38.6 -24.7 17.4
Disposals -1.1 0.0 0.0 0.0 0.0
Acquisitions 0.0 0.0 0.0 0.0 0.0
Dividends 0.0 0.0 0.0 0.0 0.0
Other -1.7 -1.6 0.0 0.0 0.0
Issue of share capital/(Buyback) 13.2 25.9 57.8 0.0 0.0
Net Change in cash flow 2.7 4.5 19.1 -24.7 17.4
Opening net (debt)/cash 14.4 17.1 21.6 40.7 16.0
Closing net (debt)/cash 17.1 21.6 40.7 16.0 33.4
Balance Sheet Ratio Analysis
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
Tangible assets 0.7 1.0 2.5 2.5 2.5
Goodwill 0.0 0.0 0.0 0.0 0.0
Other intangible 10.7 7.0 10.5 13.0 15.2
Other 0.1 0.1 0.1 0.1 0.1
Non current assets 11.5 8.1 13.1 15.6 17.8
Inventories 8.4 0.7 1.0 2.1 3.8
Trade receivables 6.8 7.6 10.6 20.5 35.8
Cash 16.9 21.4 40.6 15.9 33.3
Other 1.0 8.8 8.8 8.8 8.8
Current assets 33.1 38.6 61.0 47.3 81.7
Trade payables -1.8 -5.6 -5.9 -6.9 -8.5
Other current liabilities -2.4 -3.5 -5.5 -8.5 -21.5
Short term debt 0.0 0.0 0.0 0.0 0.0
Net current assets 28.9 29.5 49.6 31.9 51.8
Long term debt 0.0 0.0 0.0 0.0 0.0
Pension 0.0 0.0 0.0 0.0 0.0
Other/Minorities 0.0 0.0 0.0 0.0 0.0
Net assets 40.4 37.6 62.7 47.5 69.6
Net working capital 13.4 2.7 5.7 15.7 31.2
NAV per share (c) 3.8 2.5 2.9 2.2 3.2
NTA per share (c) 2.8 2.1 2.4 1.6 2.5
Year ending June 2016A 2017A 2018E 2019E 2020E
Growth
Revenue growth (%) 161.0 -59.6 199.5 101.6 72.2
EBITDA growth (%) 90.3 1,687 18.6 58.3 299.3
EPS growth (%) 94.0 1,895 25.2 57.2 245.5
DPS growth (%) n/a n/a n/a n/a n/a
Returns
Gross margin (%) 81.3 0.6 39.3 53.0 63.0
EBITDA margin (%) n/a n/a n/a n/a 17.8
EBIT margin (%) n/a n/a n/a n/a 15.8
RoE (%) n/a n/a n/a n/a 28.9
RoCE (%) n/a n/a n/a n/a 32.0
Liquidity
Net debt/equity (%) n/a n/a n/a n/a n/a
Net debt/EBITDA (x) 12.0 0.8 1.3 1.3 n/a
Interest cover (x) nm nm nm nm 125.5
Net working capital to sales (%) 39.9 19.7 14.0 19.1 22.1
Cash conversion (%) 533.1 78.0 127.8 196.1 69.3
Dividend cover (x) n/a n/a n/a n/a n/a
Seeing Machines* 6 December 2017 The Eyes have it
3
Investment case Prior to this £35m placing, Seeing Machines (SM) has received in excess of £35m investment from equity investors in the past five years – funding which has taken it to the brink of success and opened a wealth of opportunities across multiple markets. Successful delivery on exciting prospects appears ever closer, as its varied business segments mature and crystallise revenue and profit. Over the long term, the automotive OEM application remains one of the largest and most lucrative opportunities, yet it is notorious for high cost of development and length of time to payback. Success there requires deep pockets and much patience, but its ultimate value is demonstrated by Intel’s US$15.3bn purchase of a comparable automotive vision specialist, Mobileye, on a striking multiple of 42x sales. FY 2017 saw continued heavy investment in the product and infrastructure for a growing international operation. The adj. LBITDA of A$25.5m led to A$19.9m cash outflow offset by an A$25.9m equity injection. This left A$22.0m net cash in June. However, with the continued expansion we estimate the business has a cash burn of c.A$3.0m pm and on its previous funding level our forecasts showed very little working capital headroom, margin for slippage or investment resource. SM required the additional funding to provide confidence and secure its huge market opportunities. With additional funding, we expect two more years of heavy cash outflows from investment: c.A$40m in FY 2018 and c.A$25m in FY 2019 before positive cash flow of over A$15m in FY 2020, building rapidly thereafter from recurring high-margin Guardian monitoring fees, augmented by a growing royalty stream from automotive OEM.
Revised expectations post funding
Source: Company reports, finnCap estimates (1AUD to 0.6 GBP)
Following the placing, expected losses in FY 2018 and FY 2019 will be exacerbated by working capital requirements and capex, leading to a cash nadir of c.A$16m in June 2019 before generating cash in H1 2020 and thereafter. SM has recently enjoyed a raft of good newsflow, mainly in the automotive OEM market, but spanning all areas of operation: Driver Monitoring Systems (DMS) becoming critical for Euro NCAP rating; a second major OEM contract; a new Tier-1 supplier collaboration; new telematics partnerships and rapidly growing Total Contract Value (TCV) for Guardian with a huge pipeline of business as it
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
FY17 FY18e FY19e FY20e FY21e FY22e
A$m
Revenue EBITDA Funding Net cash
Previously cash constrained
Two more years of investment
Excellent newsflow
New funding
SeeThe
4
Rempot
eing Mache Eyes hav
markable intential
ines* ve it
vestment
eMaih
S
Im
expands intoMiddle East; and, in aerosnjected new harnessed tha
Progress sn
Source: Company
nvestors will markets leadi
Guidance iswith consen
Earnings shdelivering o
SM offers aAvailable Mat present.
There is a pcurrent M&A
o Europe anda new contraspace, a colconfidence i
at momentum
napshot
y reports
be gaining eng to large, r
s for revenuensus estimate
hould overhaover A$80m (£
a new technoMarkets (SAM
possibility SMA activity see
d the US inact with Proglaboration wnto the busin
m to fund the
xposure to rarecurring, high
e to treble thes for further
aul the investm£45m) annua
logy and is cM) are valued
M will be acquen in the trans
cluding largegress Rail andith Emirates ness and shabusiness thro
apid growth ah-margin reve
his year and exceptional re
ment in FY 2al FCF by FY
reating its owin $billions, w
ired at a subssport technolo
6 D
e distributor d even deploAirlines. Th
areholders. Mough to self-s
and ultimatelyenue streams
double in threvenue grow
2020 and we 2022.
wn markets; thwith little cre
stantial premogy sector.
December 2
contracts in oyment with Tis newsflow
Management ufficiency.
y a range of hs and cash flo
e following ywth beyond.
target the gr
hese Servicedible compet
ium in light of
2017
the TFL; has has
huge ow.
year,
roup
able tition
f the
SeeThe
Dee
Use
eing Mache Eyes hav
eply underv
e of funds
ines* ve it
valued
S
TSF£vdfrd
Sp
A
A
A
A
A
A
A
S
Investment
Source: Company
The current vSM to generaFY 2022. At t£750m – or 3value, reflectidiscount is wafunding rounrepresents judiscount for th
Following thvalue towarcontracts, w
SM has raiseplatform deve
Targeted us
A$15m
A$11m
A$8m
A$8m
A$4m
A$3m
A$1m
Source: Company
summary
y reports
valuation is cate >A$110mthat point, we37p per sharing the execarranted for rd, risks shost a third of hat execution
he funding anrds our 12p
which are like
ed over A$60elopment and
se of some o
Platform/S
Offices in C
Working ca
Increase F
Guardian p
Global sale
New (non-t
y reports
learly not rep (c.£63m) ade would applre. The currecution risk anrisk of deliveryould be subs
that FY 202n risk given th
nd removal ofTP. We alsoly to follow th
0m for a ran expansion to
of the funds
oC product d
Canberra & U
apital for Flee
ovio automot
product devel
es & marketin
transport) bus
presentative odj. EBITDA ony a 12x EV/E
ent share pricnd funding coy but on recestantively red22 valuation, e strong new
f risk, the shao feel they wihe recent NCA
nge of applicao meet the glo
evelopment
US/EU/APAC
et business gr
tive OEM team
opment
ng expansion
siness develo
6 D
of the opportn a recurring EBITDA multce is an 85%oncerns. At tent newsflow duced and owhich we fe
wsflow:
ares are likelyill appreciateAP announce
ations, includobal opportun
rowth
ms from 2 to
opment
December 2
unity. We exrevenue bas
tiple, valuing % discount to
this stage, soand followingour 12p TP eel is reason
y to appreciat on further O
ement on DMS
ding product nity:
5
2017
5
xpect se in it at this
ome g the
still able
te in OEM S.
and
Seeing Machines* 6 December 2017 The Eyes have it
6
Automotive OEM The past 18 months has been a remarkable period for SM’s automotive OEM business and its Fovio platform; impressive and encouraging newsflow culminating in that crucial second OEM commitment:
The 1st-generation DMS chip (SiP) has been launched and in time it will become core to the group's OEM and aftermarket offering across multiple markets;
The automotive OEM business has been retained and self-funded within the group, without losing IP to external investors in a spin-off;
Exclusivity with Takata has formally been terminated, allowing SM to work with multiple other Tier-1 suppliers, notably Autoliv, a global leader in automotive safety systems;
SM is supplying over 100 systems for trials and development with more than 20 OEMs and Tier-1 suppliers, representing an estimated 40% of current global automotive production;
Rental, consultancy and engineering fees are steadily building, ahead of major royalty streams from FY 2020;
The original firmware solution with Takata is now on the road in GM’s semi-autonomous Cadillac CT6 and is contracted for use in eight future higher-volume GM models, due from 2020; and
A second major OEM (a premium German brand) has also selected Fovio for volume deployment commencing in 2020. This indicates that it will eventually be used in a wide range of marques and models; the market leader in DMS, it will eventually see widespread use in the global automotive industry.
This newsflow convinces us that although the OEM automotive business has absorbed significant investment, it will ultimately deliver on huge potential and it is worthwhile investing additional resources to see it through. Growing demand for DMS
Improving technology is seeing Advanced Driver Assistance Systems (ADAS) becoming standard equipment in new vehicles. With growing threat and incidence of distraction from mobiles and other devices, DMS is rapidly becoming crucial ADAS functionality, and is eventually likely to be mandated. There is a growing risk of serious accidents from diminishing driver vigilance due to mobile device usage and complacency from increased autonomous capability.
Drivers who use mobile phones have been found by researchers to be four times more likely to be involved in a crash resulting in injury. 1
In 2016, motor vehicle-related crashes on U.S. highways claimed 37,461 lives and research shows that 94% of serious crashes are due to human error.2
In 2015, out of 1,469 fatal crashes in Great Britain, police recorded 400 incidences of the contributory factor of ‘failure to look’ and a further 101
1 Role of mobile phones in motor vehicle crashes resulting in hospital attendance, University of Western Australia 2005 2 NHTSA
A standout period for the automotive OEM business
DMS is a crucial element of ADAS
Increased risk
Seeing Machines* 6 December 2017 The Eyes have it
7
incidences of the contributory factors of driver in-vehicle distractions, distractions outside the vehicle, and phone use.3
Of 11,000 drivers observed in a study in St Albans, 1 in 6 were found to be engaged in a distracting activity, such as talking on a phone. The study found younger drivers more likely to be engaged in distracting activities.4
As vehicles offer greater autonomy and ADAS, driver concentration and awareness naturally declines. Yet for the foreseeable future, technology cannot offer full autonomy and still requires driver attention.
To deal with this, automotive and transport regulatory, rating and investigative bodies around the world have begun to issue new recommendations for DMS as an integral part of new vehicle designs; both Euro NCAP and the US NTSB are recommending imminent deployment of advanced DMS technology. Euro NCAP highlighted DMS as a key criterion in its stars safety classification; from 2020, if an OEM wants a five-star rating for a new model it will need to incorporate a DMS. The global market for DMS is now forecast to reach 64.8m units by 2020.5 There are various DMS solutions but vision-based real-time eye/gaze/face-monitoring is proving by far the most useful and reliable form. The technology eliminates the need for complex sensors built into seats and steering wheels, or biometric sensors that require physical contact with the driver. DMS was first introduced in 2006 with Toyota’s innovative Driver Attention Monitoring System in luxury Lexus models, which used an integrated dashboard camera to monitor the driver’s face. Other OEMs followed with their own DMS systems, but these typically monitored inputs on the vehicle (steering / pedals) rather than the driver. Early examples include: the Driver Attention Monitoring System (Toyota); Attention-Assist (Mercedes-Benz); Driver Alert System (Volkswagen); and the first standard fit DMS – Driver Alert System (Volvo). DMS will help to reduce the obvious risks associated with the migration to Autonomous Vehicles (AV). Technology is not yet sufficient for a vehicle to cope with all of the issues encountered (bad weather, poor street marking and signage, off-road parking etc.) and effective DMS is essential to ensure that drivers remain sufficiently engaged and/or ready to re-assume control as and when required. This is increasingly likely to be enshrined in legislation as AV capability becomes more common. Even the fully autonomous (level 5) vehicles of the far future, will require occupant monitoring systems (OMS) for safety and convenience. There are just two specialist sub-system suppliers of eye-tracking DMS technology; SM is the clear market leader, with Swedish competitor Smart Eye AB trailing in both technology and market position. We note that Smart Eye recently announced a contract to supply its eye-tracking software to a non-German OEM (thought to be JLR) to be included in a range of 13 car models. Smart Eye was involved in several pilots (notably with Delphi) while SM was tied into its Takata exclusivity. With that exclusivity ended, SM is now able to engage with all Tier-1s in true competition.
3 Reported road casualties Great Britain in 2015, Department for Transport 4 A roadside study of observable driver distractions, Cranfield University, 2014 5 ABI Research
Regulatory response
Eye-tracking is the solution
The DMS rollout
Also for AV migration
Just two specialist suppliers
SeeThe
8
Com
Ma
Rem
CadTak
Aut
eing Mache Eyes hav
mpetition is
arket leaders
markable pr
dillac CT6 lakata
toliv is impre
ines* ve it
inevitable
ship
rogress to da
aunched wit
essive
IfTtc SOFgtoOiys T
Sfbrp
S
TepfeT Na
ate
th
n any case, tfor two suppliTier-1s themshey currently
contracts with
SM has takenOEMS througFurthermore,gained from uhe planet). T
of Caterpillar OEMs are forn of a DMS syears. We nosuppliers has
The Automot
SM has madfunding in thbrands and revenue. Autoprogrammes,
The Automo
Source: Company
This autumnenabling its cproduct of itsfollowing Takexclusivity to Tier-1 supplie
Notably, the automotive s
the global auiers – and theselves may ey lack the t
h SM is requir
n a hardwaregh chips ratits technolog
use in the minThat technolog
and Generarced by the lisystem, we foote that the risen sharply
tive OEM mo
e remarkablehe global autheir Tier-1
omotive OEM which are bo
otive model
y reports
saw the laucutting-edge s initial excluskata’s very broaden its
er relationship
group is csafety system
utomotive DMe industry woventually seetechnical expred to termina
e-centric routther than so
gy is backed bning industry gy has been al Motors, whkes of Euro N
oresee even gnumber of S
y from 15 to 2
odel
e progress foutomotive ind
suppliers anM revenue incoth material a
unch of the 2Super Cruisesive partnerspublic air-barange of Tie
ps.
ollaborating ms, to delive
MS opportunityould not accepek to developpertise. Furthate its own de
e, focused onoftware, whicby years of re(in some of tapproved and
hile rivals remNCAP to makgreater demaSM engagem20.
or what is effdustry; engagnd receiving cludes leadingand support th
2018 Cadillace autonomouship with Tierag related iser-1 partners,
with Autoliv r DMS for a
6 D
y is huge – ept reliance on
p their own sohermore, anevelopment p
n firmly embch is more eal-world expthe harshest d adopted fomain in the dke a rapid dend for Fovio o
ments with O
ffective a staging with nu
consulting g-edge vehiche core roadm
c CT6 with us driving sysr-1 supplier Tssues, SM , and now m
(NYSE: ALautonomous
December 2
easily big enon a sole suppolutions, althoy company
programme.
edding itself easily repla
perience and denvironmentr use by the ldesign stagecision on desover the next
OEMs and Ti
rt-up with limumerous leaand engineele DMS resea
map.
SM’s technostem. This isTakata; howehas ended
maintains mul
LV), a leadevehicles. Au
2017
ough plier. ough
that
with ced. data s on likes . As sign-t few ier-1
mited ding
ering arch
ology s the ever,
that tiple
er in utoliv
SeeThe
All
eing Mache Eyes hav
about auton
ines* ve it
nomous veh
s7Tp
S
A
S
It
icles
supplies all th70,000 emploThis is a sigproducts are u
Autoliv cus
Source: Autoliv
Autoliv is also
Autonomou
Source: Autoliv
t noted Foviohis as a critic
he major globoyees in 27 cgnificant partnutilised in 1,3
stomer base
o making a su
us driving is
o’s role in Sucal milestone
bal automotiveountries. It haner; its sales
300 car mode
2016
ustained push
a key safety
uper Cruise’son the path t
e OEMs. It haas 22 technics in 2016 wls.
h for AV techn
y technology
leading edgeo AV.
6 D
as more thancal centres w
were over US
nology leader
y for Autoliv
e ‘eyes off’ s
December 2
n 80 facilities ith 19 test tra
S$10bn. Auto
rship.
solution and s
2017
9
with acks. oliv’s
sees
SeeThe
10
Oth
Con
Con
eing Mache Eyes hav
her Tier-1 re
nfirms mark
ntract detail
ines* ve it
elationships
ket leadershi
ls
S
Ttb T
Li
Sbp C
TaaCJl S
LSa(
too
ip
Autoliv’s tim
Source: Autoliv
The ending oo engage w
broadening Fo
The second O
Last month’s n has been tr
Since SM waiting to semore of thassembly re
That a preproduction models; theuse across
SM will work tbe launched fprogramme (A
Competition
There are a nautomotive Tapplications. Corporation,Johnson Conag the smalle
Smart Eye
Listed in StocSM’s main coautomotive O(16 models in
meline
of the Takata with OEMs an
ovio’s techno
OEM contrac
news that a sransformation
announced tee if that was
he dozen otepresenting a
emium-brandindicates tha
e undoubted mthe global au
through a majfrom 2020. InA$10 to A$25m
in the OEM
number of eyTier-1 supplie
These includValeo, Aisin
ntrols. However specialist T
ckholm, Gothompetitor in thOEMs. Althoun total now) it
exclusivity wnd then workology footprint
ct provides c
second majonal.
the initial GMs a one-off adther leading almost 40% o
German OEt it is likely tomarket leadeutomotive indu
or Tier-1 autonitial volume pm lifetime valu
market
ye-tracking firrs will seek tde Bosch, Au
Seiki, Magner, without ex
Tier-2 supplie
henburg-basehe third-partygh it claims st has yet to s
was clearly a k with their t in the globa
confidence
r car maker h
M contract indoption or whe
OEMs workf global vehic
EM has alsoo be used in ar in DMS, it wustry.
omotive suppliprojections suue) with the po
rms but few ito offer solututoliv, Continna Internationxperience anrs like SM an
ed Swedish fisupply of ey
significant trasee productio
6 D
significant stpreferred Tie
al automotive
has selected
n 2014, inveether the groking with itscle manufactu
o selected Fa wide range
will eventually
ier for deploymuggest this is otential for La
in the DMS mtions for DMSnental, Delphnal, Visteon Cnd expertise, nd Smart-Eye
firm Smart Eyye-tracking DMaction with mn and in our
December 2
tep, enablinger-1, significaindustry.
Fovio for des
stors have bup would con technology;uring.
Fovio for vole of marques y see widespr
ment in modea Medium V
arge (over $25
market. All mS or infotainmi, Denso, OmCorporation,they are like.
ye AB (SEYEMS technologultiple designview trails S
2017
SM antly
sign-
been nvert ; an
ume and
read
els to Value 5m).
major ment mron
and ly to
E) is gy to n-ins M in
Seeing Machines* 6 December 2017 The Eyes have it
11
both its technology stack and market position. Notably, Smart Eye claimed dominance with German OEMs shortly prior to SM announcing a contract with a premium brand German OEM, and the majority of its design-ins comes from just one OEM (thought to be Indian OEM, JLR). We believe that SM's vast depth of real-world experience, and its development of a SoC solution, set it significantly ahead of Smart Eye. Nevertheless, there is plenty of room in this huge market for both and we doubt that the industry would accept a single source supplier. Tobii
Another Swedish supplier of eye-tracking technology, Stockholm-based Tobii, (TOBII) has three units facing different markets: Assistive Communication (for the disabled); Human Behavior (research); and Consumer Electronics (mainly gaming and VR but also DMS for vehicles). It claims to have developed an eye-tracking SoC solution similar to SM. Tobii is a large business with c$100m sales; however its technology has been developed for internal rather than external environments. It has struggled for any traction in automotive and its most recent application is tracking the attention of potential buyers in Toyota car showrooms. We do not believe that it will gain serious market share. Harman
In February, Samsung purchased automotive audio/electronics supplier, Harman International. In early 2016, Harman announced a pupil-based, eye and pupil-tracking DMS measuring cognitive load and mental multitasking, which signals the car’s other safety systems to adapt to the driver’s state. However, it is reportedly based on SM technology and in any case there has been little further news on it. iMotions
A Danish company founded in 2005, iMotions developed a software platform for eye tracking aimed at the research market. It offers its Attention Tool: eye-tracking software for marketers, market researchers, media and advertising agencies, universities, etc. with no cross-over in SM's markets. Larger technology players
Google acquired Eyefluence, a 2013 start-up in the Augmented/ Virtual Reality market (headsets/eyewear). Eyefluence tracks the eye to pre-empt intention and can tell if the user is afraid, amused, elated or aroused. Microsoft is also experimenting with a built-in eye-tracking support and an experience called Eye Control, inspired from the winning MS hackathon project in 2014. It allows the disabled to use an eye tracker to operate a mouse, keyboard and text-to-speech. Again, neither have crossover with SM’s operations. The case for the automotive OEM investment
Supplying solutions to the automotive OEM industry is undoubtedly expensive and usually takes many years to see returns, but it also offers huge upside to those with sufficient backing and patience. While the forecast R&D spend seems heavy in the present scale of the company and indeed the AIM market, it is minimal – a comparative shoestring budget – by the scale of the global automotive industry.
Also worth noting the larger technology players
Current investment is slight compared to industry
Seeing Machines* 6 December 2017 The Eyes have it
12
Mobileye, a developer of vision-based ADAS solutions, spent >US$65m on R&D last year (probably c.$10m higher due to offset NRE) and has spent almost US$200m over the past six years. In contrast, SM has spent less than US$18m on R&D across FY 2015, FY 2016 and H1 2017 – a pittance in comparison.
Mobileye R&D spending
Source: finnCap
The automotive industry as a whole spends over $100bn annually on R&D:
Automotive industry R&D spending
Source: PWC Innovation 1000 study
The upside of this investment will be an extremely valuable share in the global automotive industry. Global vehicle production is comfortably on track for annual production of 100m units and at an estimated c.US$25 per vehicle for a SoC-based DMS solution (compared with $9 for the original firmware solution), it represents an eventual US$2.5bn annual opportunity for SM when DMS is obligatory standard fit. SM’s own forecasts expect the DMS market to exceed US$1bn by 2026, with the latest industry reports expecting penetration rates exceeding 50% by 2024.
15.4 15.922.3
36.9
43.4
65.3
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016
US
$m
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US
$bn
Remarkable opportunity
SeeThe
Inclea
OE
Eyebec
A ti
eing Mache Eyes hav
creased distrds to regula
EMs must rus
e-tracking Dcome ubiqui
ight market
ines* ve it
raction issueation
sh to deliver
DMS expecteitous
S
TwrifN Irstmtw Tepias Amse
es
r
ed to
Global vehi
Source: Statista
The increasinwill lead to mroads. To dnvestigative bfor DMS as aNTSB, are rec
n Septemberatings and tesystem; from o integrate a
more years timeline, this
working with S
Thus regulatoexpect they purposes. Thnputs to seaand most relsuch as in info
As noted abomarket; SM isuppliers andexperience an
icle producti
ng use of smmuch higher l
eal with thibodies aroun
an integral pacommending
r, Euro NCAesting) identi2020, if an O
a good DMS.to design andwill certainly SM’s technolo
ors are seekwill eventual
here are varioat/seatbelt seniable form ofotainment (i.e
ove, we doubts one of justd in our viewnd solutions i
ion since 200
martphones aevels of distrs, automotivd the world hrt of new veh rapid deploy
AP (the Eurofied DMS as
OEM wants a . This comprd start produsharpen the ogy.
king to put Dlly be mandaous types of nsors. Howevf DMS and be. operating d
t that a singlet two crediblew the marken production
00
nd improvingraction and cve and transave begun to
hicle designs; yment of DMS
pean body rs a key criterfive-star ratinesses time fo
uction tooling focus for the
DMS in new atory for safsolutions, ra
ver, eye tracbrings multipldisplays).
e supplier will e independenet leader witand in use on
6 D
g semi-autoncomplacent insport regulao issue new r both Euro N
S capability in
responsible forion in its safng for a new mor OEMs as on a new m
e dozen or so
vehicles frofety and autoanging from cking has prole other app
dominate sunt specialist th many yean the road.
December 2
omous capabnattention ontory, rating ecommendat
NCAP and then new vehicles
or vehicle safety classificamodel it will nit takes thre
model. Giveno OEMs curre
m 2020 andonomous drimonitoring d
oven the simplications as w
uch a large glautomotive Dars of real-w
2017
13
bility n the
and tions e US s.
afety ation need e or the ently
d we ving river plest well,
obal DMS world
SeeThe
14
Reama
Als
‘La
eing Mache Eyes hav
ason to exparket share
so M&A
nd-grab’
ines* ve it
ect significa
S
AadaTp Tcf
“udc
S
Andbos‘
ant
Leading aut
Source: Statistica
As shown abannually. In deployment foa premium GeTier-1 supplieproportion of t
The automoticompanies, afastest strateg
Qualcomm EV/ Sales m
General MoCruise Auto
Mobileye wmultiple of 4
With Mobile“Intel estimateup to $70 bildata-intensivecomputing an
Source: Company
Automotive Onot undertakedirectly or whbut will seek or encouraginsufficient fundreal estate’ c
tomotive OE
bove, GM is light of SM
ollowed by roerman branders, we are that DMS aut
ive industry ias well as thgy for building
is buying autmultiple of 5.5
otors acquireomation, repo
was purchase42x 2016 sale
eye, Intel boues the vehiclelion by 2030
e market opnd connectivit
y reports
OEMs are nowe these numen general Rsolutions elseng Tier-1 supding to engagurrently avail
EMs
a leading gloM’s two conollout to highe; and its ongoincreasingly tomotive oppo
is undergoingeir large tecg IP stacks.
tomotive sem5x and EV/EB
ed a three yeortedly for up
d by Intel in es and 87x ea
ught into care systems, d
0. The transaportunities thy from the clo
w time-pressmerous OEMRFPs are issuewhere; eitheppliers to de
ge with the infable in this m
obal manufacntracts with er-volume mooing engagemconfident thaortunity.
g a technologhnology supp
miconductor sBITDA of 15.5
ear-old autonto $1bn.
March 2017 arnings.
r tech ata and serv
action extendhat build on oud, through t
ured to selec engagemened) the OEMer approachinvelop. It is tflux of deman
market.
6 D
cturer, sellingGM (the h
odels); the recment with 20 at it will sec
gy revolutionpliers, are us
supplier NXP 5x.
nomous vehi
for US$15.3b
vices market ds Intel’s stra
the companthe network,
ct DMS solutnts (either w
Ms will not simng direct rivatherefore critind, and secur
December 2
g c.10m vehiigh-end Cadcent contract other OEMs
cure a signifi
n and automosing M&A as
for US$38bn
cle tech star
bn, a remark
opportunity toategy to invesny’s strengthto the device
tions. If SM dwhen approacmply shelve pl
ls like Smart-ical that SM re a large are
2017
icles dillac with and cant
otive s the
n, an
rt-up
kable
o best ins in
e.”
does ched ans, -Eye has
ea of
SeeThe
Uni
Rec
Diresal
eing Mache Eyes hav
ique safety o
curring reve
rect, Distribues
ines* ve it
offering
enue stream
utor and Part
FWFbhm‘sb Gisaca TsrsB((p
S
Sctt
rtner
Fleet reveWith the saleFY 2016, grobusiness (rehas been slmarket. In cogo it alone’
success throbe a breakou
Guardian is ntervention dsystems for fand fault attrican. They doand efficiency
This is a telsubscriptions recurring revservice was oBangkok, and(Guardian ha(hardware copayments).
The Guardia
Source: Company
Sales are mchannels; eitelematics pao share a har
nue begine of the off-
oup revenue etrofitting Gulow as the ontrast to itsin Fleet but
ough partnerut year, parti
a pioneeringdevice. Whilefleets (notablybution device, however, co
y spending on
lematics-style(up to $70)
venue base uoriginally run fd will increasiardware sale ost absorbed
an offering
y reports
made throughther distributrtners such ardware platfo
ns to scale-road busine
over the neuardian devic
company fes other busiafter a quie
rships and ccularly in H2
g real-time de there are oy Lytx and Ses. They do nompete, alonn technology.
e SaaS (safe) for 24/7 drunder 3 to 5from Tucson ingly be manand reduced
d over the l
h a direct saors who can
as global playorm and conne
e ess to CAT fext few yearsces to truck/eels its wayiness modelt FY 2017, G
channel sales2.
river fatigue other in-cab
SmartDrive), tnot actively pg with telema
ety as a seriver monitor5-year contrabut has now aged by AI in
d monthly molength of a
ales force (4n buy in buyer, MiX Telemectivity with te
6 D
for an A$22ms relies on t/van/coach fy forward, ls, SM initia
Guardian is ees and we ex
or distractioforward/drive
these are poprevent accideatics supplier
ervice) offerinring and anaacts. The removed to a lo
n future. Saleonitoring fee)
contract by
40% at presulk up-front, matics. Thereelematics pa
December 2
m licence fehe on-road ffleets). Progrcreating a lly attemptedenjoying grexpect FY 201
on detection er facing camst-event anaents as Guarrs, for fleet sa
ng, with monalytics buildinemote monitoower cost reg
es can be ‘ca) or ‘opex’ ba
higher mon
sent) or throor now thro
e is also potertners in futur
Other telematics suppliers
2017
15
ee in fleet ress new d to
eater 8 to
and mera lysis
rdian afety
nthly ng a oring gion, apex’ ased nthly
ough ough ential re.
Seeing Machines* 6 December 2017 The Eyes have it
16
There is a working capital impact from opex sales (both direct and through telematics partners); however, SM will build regular recurring and cash-generative revenue stream from the monthly fees. To offset the working capital outlay as the Fleet business ramps up, SM is factoring these sales over the next few years. As its own net cash balances build from FY 2021, the group can become self-financing. Early issues for Guardian included the high cost of the device (>US$1,000) and a confusing plethora of connected technologies offered to fleet managers: telematics, route-scheduling, vehicle/load monitoring as well as driver behaviour reporting. This could see multiple hardware installations and maintenance, multiple suppliers as well as multiple connections and monitoring fees for each vehicle. We expect the cheaper second-generation device due in the next few months to make a significant difference, as will the closer collaboration and eventual integration with telematics suppliers. Accelerating down the road
Five new distributors appointed in FY 2017 are significantly boosting the rollout. Fleet revenue has grown from A$3.3m in FY 2016 to A$9.1m in FY 2017. Moreover, the TCV is building rapidly. TCV of A$7.9m at the start of the year grew to A$36.5m in June, with A$28.6m signed in the year and A$22m yet to be recognised.
YoY growth in Guardian TCV
Source: Company reports
There was a strong H2 performance, accelerating through the year with TCV more than doubling in H2 compared with H1 (roughly $7m/$22m). We understand there are now over 120 Fleet customers worldwide, with >10,000 vehicles being monitored. Looking ahead, there is potential to sign TCV of A$25m in H1 alone. The deal pipeline for Guardian is now c.$200m, with numerous assessments underway; c.75% of that pipeline is in negotiation with a proposal and proof of concept and SM enjoys a strong track record of converting trials into contracts (70-80% conversion).
A$5.9MA$15.0MA$2.0M
A$21.5M
A$7.9M
A$36.5M
A$3.3MA$9.1M
TCV Revenue TCV Revenue
FY2016A FY2017AReported Revenue (Fleet) Contract Value Not Recognised as Revenue Cumulative Revenue to Date
Securitising cash flows
Overcoming early issues
A$22m of TCV to be recognised
TCV doubled in H2 2017 on H1
Trials underway and expected to convert
SeeThe
Fl
Sou
Cha
Ins
Gu
eing Mache Eyes hav
eet progress
rce: Company rep
annel expan
urance strat
ardian going
ines* ve it
s shown in th
ports
nsion
tegy
g global
he June revi
SM
Adurec T1
ew
SM will increaMiX which ca
An integratplanned. M622,000 momore than 1
SM has expFleet telemworld, incluto the Geotwith SM bec
The distribuconnecting 8,000 units and to have
A Dubai disMiddle Eastunits – the be ordered received pudelivered inhelping to u
As seen in thedrive adoptionuser saves mreduced claimextended glocontributing to
The global ro138 certified t
asingly utilisen provide sal
ted co-brandiX is one of
obile assets –120 countries
panded its nmatics solutiouding with matab Marketplacoming a Geo
ution networ1,000 units – in total and
e 6,000 conne
stributor, Tect and Russialargest single from SM anurchase orden FY 2017 butunderpin our f
e telematics n. The ‘virtuomoney from
ms. The initialobally, possibo ‘driver score
ollout continuthird-party co
channels, boes, installatio
ded solution the world’s le
– trucks, buses, across six c
etwork throuons with almany Fortune 5ace, which seotab Marketp
rk is also pe– mainly in heexpects to h
ected by June
chnologica, ha with the come fleet customnd installed oers for 1,000 t the majorityforecasts.
industry, SM ous circle’ selower premi
partner is Zubly even dowecards’, whic
es, from APAontractor insta
oth distributoron and mainte
with MiX Teading telemes, vans, carscontinents.
gh a partnersost 1m devic500 companierves more tha
place partner.
erforming weeavy-duty truhave sold 4,0e next year.
has won two mbined oppormer deals to over the nextunits in relatof the 1,000
will utilise reees Guardianums while t
urich in APACwn to the drh will transfor
AC to the USallers around
6 D
rs and telemaenance on a g
Telematics (Nmatics provide
s, motorbikes
ship with Geces in operaes. Guardianan 14,000 Ge
ell, with Kiattucks – by Jun000 by the ca
major Guardrtunity expectdate. The G
xt two years; tion to the deunits should
educed insuran pay for itsethe insurer sC and Australriver rather trm the logistic
S and now Ed the world, 1
December 2
atics partners global scale.
NYSE: MIXTers, tracking os and trailers
otab, a leadeation around has been adeotab custom
tana in Thaine. It has ordealendar year-
dian deals inted to total 5uardian unitsSM has alre
eals. Some wbenefit FY 20
ance premiumelf in months;saves moneyia, but this withan fleet levcs industry.
urope. With 4 assistants
2017
17
like
T) is over – in
er in the
dded mers,
land ered -end
the ,620
s will eady were 018,
ms to ; the y on ll be vels;
over and
Seeing Machines* 6 December 2017 The Eyes have it
18
12 field support specialist (trainers), installations are taking place across the globe. Guardian launched in Malaysia in May and recently expanded into the UK with an initial major 320-vehicle contract from FreshLinc. Guardian continues to evolve both its products and services; the business model is driven by the cost of the hardware; reducing this will allow a faster breakeven on the contract and a strong return on investment. Fleet 1.0 was simply a de-ruggedized version of the original, expensive mining device. We anticipate the much cheaper yet higher-function Fleet 2.0 device to be available early next year. Specifically designed for purpose, Fleet 2.0 offers more than a 50% reduction in cost, weight and installation time, as well as better performance. Fleet 3.0, based on SM’s own Fovio chipset, is already on the roadmap. That will be 50% cheaper again and is targeted for a 2019 launch. Eventually we expect it to share a hardware platform with selected telematics partners, further reducing costs. Given the cost differential, limited stocks of Fleet 1.0 have been built, so this is likely to make the Fleet business particularly H2-weighted in FY 2018, and since Fleet will comprise the vast bulk of FY 2018 group sales, we are prepared for a relatively weak H1 performance. The results give us increasing comfort that Guardian will become a major global business, building a revenue base and generating profit whilst allowing the OEM automotive business to scale up over the next few years. This remains a massive market. There are over 200m heavy commercial vehicles suitable for Guardian deployment, representing a global SAM of over US$2bn (A$2.5bn) TCV annually, yet Guardian remains the only credible supplier of retrofit DMS. CAT’s off-road business expected to rebound Little has been heard about the original off-road business which was licensed to CAT for five years for A$22m in 2016. This is part of CAT’s move to build an ecosystem and recurring revenues around its hardware sales and extensive fleet of vehicles in use; a response to the downturn in resource markets and a corresponding fall in equipment sales. Receiving only royalties on hardware and monitoring sales, SM has had to wait for the slow process of CAT training its sales force and global distributor network. Some 5,000 mining trucks are now being monitored and we are encouraged to see that the upturn in commodity prices is feeding into a recovery in the resource sectors and corresponding CAT equipment sales rebound. We therefore forecast increased CAT royalty receipts through FY 2018 and FY 2019 at near 100% margin.
Next generation expected H2
H2-weighted sales
Fleet success allows Automotive to build
CAT response to the downturn
Recovery in resource sectors flagged
SeeThe
Air
Pilo
Rai
Use
eing Mache Eyes hav
and rail also
ot support sy
il agreemen
e by TFL
ines* ve it
o progressin
ystems
nt extended
AWmAr
S
Plmybmotfs Towcae AddtRsh
ng
Aviation &While recentmarkets, SMAviation and remain valuab
Air and Rai
Source: Company
Pilot fatigue isess hospitablmajor freight cyears. Meanwbeen installedmultiple carrioptimise its raining/flight
forecast demsuppliers.
The Progressone of the larworldwide, ancommuter, indapplications oexpect increa
Although unlidevices have derailment in o be Guardia
Rail will seesymptomatic ohas failed to p
& Rail market annocontinues to
Rail segmenble markets a
l market ove
y reports
s a serious isle than for pacompanies awhile, it contd on transatiers includingpilot trainingsimulation
mand to 2035
s Rail agreemrgest suppliend the largestdustrial and mon a royalty based revenue
ikely to be f been deploywhich a driv
an units adape dedicatedof numerous prevent fatigu
ouncements fo develop sigts. Although
and we anticip
erviews
ssue, particulassenger trannd should setinues to worlantic flights g Emirates, g process. Tindustry (6005) and with
ment was exters of railroadt builder of dimining). It habasis, with mfrom this ma
financially sigyed by TFL oer lost attent
pted for rail us rail units rail accidents
ue or distractio
focus on the gnificant busiinvestment le
pate further a
arly in freightnsport. SM is e wide deployrk with two mfor over a ywhich is kehere is simi0,000 new air traffic co
ended in Septand transit s
iesel-electric as exclusive winimum revenrket over the
gnificant, we on Croydon trion, resultingse; however,
developed s where the tron events lea
6 D
immediate riness opportuevels are rela
announcemen
t, where houralready engayment there omajor aircraftyear. It is als
een to utiliseilar engagempilots are re
ontrol operato
tember; a CAsystem produlocomotives
worldwide licenue growth cnext few yea
note press rams in respo
g in 7 deaths.the partnershand deployraditional ‘de
ading to death
December 2
oad and off-runities acrossatively low, thnts in both.
rs are longer aged with sevover the nextt OEMs and so engaged
e the solutionment in the equired to mors and syst
AT subsidiary,ucts and serv(freight, interence for coreommitments.
ars.
reports that onse to the 2 These are lihip with Proged. Croydonad man’s hanh and injury.
2017
19
road s its hese
and veral t few has with n to pilot
meet tems
, it is vices rcity, e rail We
SM 2016 ikely ress n is ndle’
Seeing Machines* 6 December 2017 The Eyes have it
20
Use of the extra funding The company raised £35m (over A$60m) to accelerate development of its platform and product, as well as expanding the infrastructure to support the expected sharp ramp in customer programmes. Management has been highlighting the need for additional investment in the automotive platform and the requirement to support high levels of engagement with both OEMs and Tier-1 suppliers across all its target markets: automotive, rail and aviation. The group also requires infrastructure expansion as it grows into a global business, and additional working capital headroom.
Use of funds
A$15m Accelerating Platform/SoC product development
A$11m Offices and infrastructure in Canberra & US/EU/APAC
A$8m Working capital for Fleet business growth
A$8m Increase Fovio automotive OEM teams from 2 to 5
A$4m Guardian and auto aftermarket product development
A$3m Global sales & marketing expansion
A$1m New (non-transport) business development
Source: Company reports
While strong growth is expected from Guardian, clearly the group requires external funding; SM continues to actively explore discussions with a number of potential strategic and financial partners with regards to supply agreements, joint ventures and strategic investment, but equity remains the best source of capital. The group will undertake significant extra work on the core platform. This would accelerate the product roadmaps and build machine-learning infrastructure. We note that management sees significant opportunities in ML and AI monitoring. The business is developing into an ‘AI vision platform’; it has world-class capabilities in this area, which we agree will become extremely valuable in future. Core technology platform investment is needed for all markets. Whilst some R&D/engineering spend is unique to each, the majority is on a common platform which is key to group strategy. Automotive will be the first to utilise Fovio chips but all the businesses will in time. A Field Programmable Gate Array platform has been used to reduce cost and risk; configured after manufacturing, it provides the benefits of a hardware-optimised product but at lower cost, less time and lower risk than dedicated chip development. SM will have a range of solutions; some for which the Fovio processor hardware will be a good fit, and some (more basic/early stage) that will suit a firmware approach. Beyond the additional R&D, funds will be used to scale the Fleet business (sales, support and operations) and build the wider group’s global footprint (US and European offices, followed by Japan, Korea, and China). We estimate an additional A$13m would be spent in FY 2018 (A$6m expensed and A$7m capitalised) and an additional A$8m in FY 2019 (A$5m capitalised), increasing the expected EBITDA losses to A$30.2m and A$12.6m, respectively. We envisage some relatively small further capital spending in FY 2020 and FY 2021, although by then SM should be making significant cash profit.
Increased investment targeted
Seeking strategic investment as well
Additional R&D areas targeted
Engineering a common platform
Further investing in business
Majority of additional spend in next two years
Seeing Machines* 6 December 2017 The Eyes have it
21
Forecasts We expect the additional investment to make no change to revenue in the short term; this is more focused on reducing funding risk, consolidating market leadership and taking a greater share of the market in the long term. Our financial forecasts show the business relying on extremely tight working capital management and these funds provide much needed headroom, significantly reducing risk. They will also be used to provide further development of the core technology with intent to secure a larger portion of the huge market opportunity in the longer term. Revenue forecasts
Since the additional spend will have little immediate revenue benefit, we make no change to near-term sales forecasts on this fundraising. With the sale of the off-road business to CAT for an A$22m licence fee in FY 2016, group revenue growth over the next few years relies heavily on the Fleet business (retrofitting of Guardian devices). Initially this is direct and through distributors but soon through telematics partnerships. The royalties from CAT sales have c.100% margin but will take time to build while the CAT sales staff and dealer network are trained. The OEM Automotive business will see growing levels of NRE fees this year and next but will start to deliver significant revenue from FY 2021 from use in production models launched in 2020.
Revenue forecast by division
Source: finnCap estimates
From the A$13.6m delivered in FY 2013, driven by continued momentum in Fleet, group revenue is expected to grow “in-line with market expectations” (broker consensus c.A$40m) during FY 2018, rising to “under A$100m” in FY 2019. We expect that FY 2018 sales will be heavily H2-weighted due to the reliance on Fleet revenues. As with Telematics, Guardian revenues build through the period and this will be exacerbated as customers are likely awaiting the introduction of second-generation devices due from December. There are strong orders but the second generation devices will be lower-cost and will provide higher profit so deliveries are targeted for H2. Over 70% of fleet revenues are anticipated in H2 2018 so investors should not be overly concerned at a weak H1.
0.0
50.0
100.0
150.0
200.0
250.0
300.0
FY18e FY19e FY20e FY21e FY22e
A$
m
CAT Fleet Rail Air Automotive
Revenue relies on Fleet ramp up
FY 2018 revenue guidance
FY 2018 to be heavily H2 weighted
Seeing Machines* 6 December 2017 The Eyes have it
22
Earnings
With the additional funding, we expect investment to increase both opex and capex, and adjust our EBITDA expectations accordingly:
Post funding adjustments
A$m FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Revenue (revised) 40.6 81.9 141.0 210.9 279.8
Revenue (old) 40.3 81.5 131.4 209.0 267.3
EBITDA (revised) -30.2 -12.6 25.1 70.2 116.6
EBITDA (old) -23.8 -10.0 22.4 77.9 125.2
Capex (revised) -7.5 -5.0 -5.0 -5.0 -5.0
Capex (old) -0.5 0.0 -4.0 -4.0 -4.0
Net cash (revised) 40.7 16.0 33.4 90.5 172.4
Net cash (old) 0.5 0.4 28.9 83.1 175.2
Source: finnCap estimates
Without the new funding, SM would not have been able to make investments in platform development or international infrastructure, nor would it have had leeway for error. Our previous forecasts had little capitalised development spend and, based on the company’s previous spending plans, very little headroom in cash (less than A$0.5m) for FY 2018 and FY 2019, even with highly optimistic working capital management. Earnings analysis
The high-margin CAT royalty business should see profit this year in FY 2018, while we expect Fleet to transition to profitability in FY 2019, with Rail and Air also making small positive contributions.
EBITDA by division
Source: finnCap estimates
The heavy development spending on both the central platform and on OEM Automotive solutions is expected to continue throughout the next five years; funded by equity in FY 2018 and FY 2019 but then by Fleet profit from FY 2020 and thereafter. While not making contribution in the near term (we target positive EBITDA for the unit in FY 2023), OEM Automotive is a long-term benefit, providing a share of a huge global market.
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
FY18e FY19e FY20e FY21e FY22e
A$m
CAT Fleet Rail Air Central / Platform Automotive
Pre-funding forecasts left no headroom
Seeing Machines* 6 December 2017 The Eyes have it
23
Divisional breakdown of five year forecasts
A$m FY18e FY19e FY20e FY21e FY22e
Y/E Jun-18 Jun-19 Jun-20 Jun-21 Jun-22
Revenue
CAT 3.7 6.5 9.2 11.4 13.3
Fleet 27.6 56.5 95.7 140.5 185.1
Rail 1.0 3.0 7.0 11.0 15.0
Air 1.0 1.8 5.0 9.0 13.0
Automotive 7.3 14.0 23.9 38.5 52.9
40.6 81.9 141.0 210.9 279.8
Gross Profit
CAT 3.7 6.5 9.2 11.4 13.3
Fleet 3.9 23.5 55.1 95.9 140.3
Rail 0.7 2.1 4.9 7.7 10.5
Air 0.7 1.2 3.5 6.3 9.1
OEM Automotive 6.9 9.9 16.0 24.8 33.3
16.0 43.4 88.9 146.4 206.8
39% 53% 63% 69% 74%
Overheads
CAT -0.2 -0.2 -0.2 -0.2 -0.2
Fleet -11.0 -12.3 -12.6 -14.0 -16.0
Rail -1.0 -1.0 -2.0 -4.0 -6.0
Air -1.0 -1.0 -2.0 -4.0 -6.0
OEM Automotive -20.0 -31.5 -37.0 -41.0 -45.0
Central costs & platform -13.0 -10.0 -10.0 -13.0 -17.0
-46.2 -56.0 -63.8 -76.2 -90.2
EBITDA
CAT 3.5 6.3 9.0 11.2 13.1
Fleet -7.1 11.0 42.0 81.1 123.1
Rail -0.3 1.1 2.9 3.7 4.5
Air -0.3 0.2 1.5 2.3 3.1
OEM Automotive -13.1 -21.6 -21.0 -16.2 -11.7
Central costs & platform -13.0 -10.0 -10.0 -13.0 -17.0
-30.2 -12.6 25.1 70.2 116.6
Source: finnCap estimates
Metrics used (average pricing)
Y/E Jun-18 Jun-19 Jun-20 Jun-21 Jun-22
Off-road units 1,500 2,750 3,750 4,400 4,850
Fleet units 24,000 45,000 70,000 95,000 115,000
OEM units 45,000 210,000 330,000 555,000 750,000
Source: finnCap estimates
Seeing Machines* 6 December 2017 The Eyes have it
24
Valuation The current valuation is clearly not representative of the opportunity. AIM investors have contributed c.£70m investment of the current £122m (post-funding) market capitalisation. This clearly does not reflect the technology; the work input; or the market opportunities ahead. We expect SM to generate >A$110m (c.£63m) adj. EBITDA on a recurring revenue base in FY 2022. At that point, we would apply a 12x EV/EBITDA multiple, valuing it at £750m – or 37p per share (post-funding). The current share price is an 85% discount to this value, reflecting both execution risk and the previous funding concerns. We accept that at this stage some discount is still warranted for timing and execution but after recent newsflow and the placing, the overall risk is substantively reduced. Our 12p TP still represents just a third of that likely FY 2022 valuation, which we feel is a reasonable discount for the remaining risk given the newsflow. Following the funding, the shares are likely to appreciate in value towards our 12p TP. We also feel that the share price will rise on further OEM contracts, which are likely to follow the recent NCAP announcement on DMS.
Worth £750m on 2022 forecast
Reduced risk not factored in yet
Seeing Machines* 6 December 2017 The Eyes have it
25
Income Statement
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
Sales 33.6 13.6 40.6 81.9 141.0
Sales growth (%) 161.0 -59.6 199.5 101.6 72.2
Cost of sales -6.3 -13.5 -24.6 -38.5 -52.1
Gross profit 27.3 0.1 16.0 43.4 88.9
Gross margin (%) 81.3 0.6 39.3 53.0 63.0
Operating expenses -28.7 -25.6 -46.2 -56.0 -63.8
Adjusted EBITDA -1.4 -25.5 -30.2 -12.6 25.1
Depreciation/Amortisation -0.9 -1.3 -2.5 -2.5 -2.8
Adjusted EBIT -2.3 -26.8 -32.7 -15.1 22.3
Adjusted EBIT margin (%) -6.9 -197.4 -80.6 -18.4 15.8
Associates/Other 0.0 0.0 0.0 0.0 0.0
Net interest 1.4 0.5 0.1 -0.1 -0.2
Adjusted PBT -0.9 -26.3 -32.6 -15.2 22.1
Adjustments -0.7 -2.3 -2.0 -2.0 -2.0
Reported PBT -1.6 -28.5 -34.6 -17.2 20.1
Taxation 0.0 -1.1 0.0 0.0 0.0
Tax rate (%) nm nm 0 0 nm
Post tax profit -1.6 -29.7 -34.6 -17.2 20.1
Minorities -0.1 0.0 0.0 0.0 0.0
Reported earnings -1.7 -29.7 -34.6 -17.2 20.1
Weighted average no.shares 981.7 1,264.4 2,011.0 2,186.0 2,186.0
Average no.shares (FD) 981.7 1,264.5 2,011.0 2,186.0 2,186.0
Stated EPS (c) -0.2 -2.3 -1.7 -0.8 0.9
Adj. EPS (FD) (c) -0.1 -2.2 -1.6 -0.7 1.0
DPS (c) 0.0 0.0 0.0 0.0 0.0
Source: Company reports, finnCap estimates
Seeing Machines* 6 December 2017 The Eyes have it
26
Cash Flow
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
EBITDA -1.4 -25.5 -30.2 -12.6 25.1
Net change in working capital -5.0 8.9 -3.0 -10.0 -15.5
Share based payments 0.0 0.0 0.0 0.0 0.0
Profit/loss on disposal 0.0 0.0 0.0 0.0 0.0
Net pensions charge 0.0 0.0 0.0 0.0 0.0
Change in provision 0.0 0.0 2.0 3.0 13.0
Other items 0.0 0.0 0.0 0.0 0.0
Operating cash flow -6.4 -16.6 -31.2 -19.6 22.6
Cash interest 1.4 0.1 0.1 -0.1 -0.2
Tax paid 0.0 -1.1 0.0 0.0 0.0
Capex -2.5 -2.2 -7.5 -5.0 -5.0
Free cash flow -7.6 -19.9 -38.6 -24.7 17.4
Disposals -1.1 0.0 0.0 0.0 0.0
Acquisitions 0.0 0.0 0.0 0.0 0.0
Dividends 0.0 0.0 0.0 0.0 0.0
Other -1.7 -1.6 0.0 0.0 0.0
Issue of share capital/(Buyback) 13.2 25.9 57.8 0.0 0.0
Net Change in cash flow 2.7 4.5 19.1 -24.7 17.4
Opening net (debt)/cash 14.4 17.1 21.6 40.7 16.0
Closing net (debt)/cash 17.1 21.6 40.7 16.0 33.4
Source: Company reports, finnCap estimates
Seeing Machines* 6 December 2017 The Eyes have it
27
Balance Sheet
Year ending June (A$m) 2016A 2017A 2018E 2019E 2020E
Tangible assets 0.7 1.0 2.5 2.5 2.5
Goodwill 0.0 0.0 0.0 0.0 0.0
Other intangible 10.7 7.0 10.5 13.0 15.2
Other 0.1 0.1 0.1 0.1 0.1
Non current assets 11.5 8.1 13.1 15.6 17.8
Inventories 8.4 0.7 1.0 2.1 3.8
Trade receivables 6.8 7.6 10.6 20.5 35.8
Cash 16.9 21.4 40.6 15.9 33.3
Other 1.0 8.8 8.8 8.8 8.8
Current assets 33.1 38.6 61.0 47.3 81.7
Trade payables -1.8 -5.6 -5.9 -6.9 -8.5
Other current liabilities -2.4 -3.5 -5.5 -8.5 -21.5
Short term debt 0.0 0.0 0.0 0.0 0.0
Net current assets 28.9 29.5 49.6 31.9 51.8
Long term debt 0.0 0.0 0.0 0.0 0.0
Pension 0.0 0.0 0.0 0.0 0.0
Other/Minorities 0.0 0.0 0.0 0.0 0.0
Net assets 40.4 37.6 62.7 47.5 69.6
Net working capital 13.4 2.7 5.7 15.7 31.2
NAV per share (c) 3.8 2.5 2.9 2.2 3.2
NTA per share (c) 2.8 2.1 2.4 1.6 2.5
Source: Company reports, finnCap estimates
Seeing Machines* 6 December 2017 The Eyes have it
28
NOTES
Seeing Machines* 6 December 2017 The Eyes have it
29
NOTES
Seeing Machines* 6 December 2017 The Eyes have it
30
NOTES
SeeThe
Ke
VS
Mit
He
Leg
Fid
T E
Pol
Di
Buy
Ho
Sel
eing Mache Eyes hav
ey Sharehold
I Berhad
on Asset Man
rald Inv. Man
gal & Genera
elity Internati
Edwards
lar Capital
istribution of
y
ld
ll
ines* ve it
ders (pre-pla
n.
.
l Inv. Man.
ional
f Ratings
M
J
K
Seit(dapcaaRtaog
S
acing)
%
11.7
5.6
4.2
4.0
3.1
2.7
2.1
%
100
0
0
Managemen
Mike McAuliff
James Palme
Ken Kroeger
Company D
Seeing Machenable machits machine lethrough AI a(DMS) in mdistraction anautomotive Apioneering acombines an and cloud aaccidents, saRoad markettracking, offeaftermarket soffices in USglobal industr
Source: Company
nt Summary
fe
er
Description
hines is an inhines to see, earning visio
analysis of heost Transpond cognitive
ADAS/Autonoaftermarket in-cabin safe
analytics seraves costs, ants and is en
ering solutionsystem and SA and Eurory leaders in i
y reports
ndustry leadeunderstand an platform toeads, faces art sectors. Dstate of Drivmous Drivingcommercial ety interventiorvices delivend lives. Theabling next gs from embeservice solut
ope, the Comits markets.
er in computand assist pedeliver real-t
and eyes, foDMS detectsvers which is g as well as f
fleet solutioon system wired on a S Company algeneration a
edded softwations. Based
mpany's prod
6 D
Exe
ter vision teceople. The Ctime understa
or Driver Mons and manag
key enablinfor Guardianon. The Guith 24/7 telemSaaS basis lso serves Av
applications fore and FOVI in Canberra
ducts have b
December 2
C
C
ecutive Chairm
chnologies whompany depanding of drivnitoring Systeges drowsineg technology, the Compauardian solumatics monito
which preveviation, Rail, or precision O processora, Australia ween adopted
2017
31
CEO
CFO
man
hich loys vers ems ess,
y for ny's
ution oring ents Off-eye
rs to with
d by
Research Mark Brewer 020 7220 0556 mbrewer@finncap.com Guy Hewett 020 7220 0549 ghewett@finncap.com David Buxton 020 7220 0542 dbuxton@finncap.com Mark Paddon 020 7220 0541 mpaddon@finncap.com Lorne Daniel 020 7220 0545 ldaniel@finncap.com Martin Potts 020 7220 0544 mpotts@finncap.com Andrew Darley 020 7220 0547 adarley@finncap.com Alex Pye 0207 220 0554 apye@finncap.com Harold Evans 020 7220 0552 hevans@finncap.com Roger Tejwani 020 7220 0548 rtejwani@finncap.com Jeremy Grime 020 7220 0550 jgrime@finncap.com Dougie Youngson 020 7220 0543 dyoungson@finncap.com Raymond Greaves 020 7220 0553 rgreaves@finncap.com
Corporate Broking Sultan Awan 020 7220 0592 sawan@finncap.com Simon Johnson 020 7220 0525 sjohnson@finncap.com Andrew Burdis 020 7220 0524 aburdis@finncap.com Alice Lane 020 7220 0523 alane@finncap.com Richard Chambers 020 7220 0514 rchambers@finncap.com Emily Morris 020 7220 0511 emorris@finncap.com Camille Gochez 020 7220 0518 cgochez@finncap.com Stephen Norcross 020 7220 0513 snorcross@finncap.com Mia Gardner 020 7220 0512 mgardner@finncap.com Tim Redfern 020 7220 0515 tredfern@finncap.com Nikita Jain 020 3772 4652 njain@finncap.com Abigail Wayne 020 7220 0594 awayne@finncap.com
Sales Stephen Joseph 020 7220 0520 sjoseph@finncap.com Louise Talbot 020 3772 4651 ltalbot@finncap.com Tony Quirke 020 7220 0517 tquirke@finncap.com Malar Velaigam 020 7220 0526 mvelaigam@finncap.com Sunila de Silva 020 7220 0521 sdesilva@finncap.com Rhys Williams 020 7220 0522 rwilliams@finncap.com
Investor Relations Lianne Tucker 020 7220 0527 ltucker@finncap.com Lisa Welch 020 7220 0519 lwelch@finncap.com Lucy Nicholls 020 7220 0528 lnicholls@finncap.com
Sales Trading Kai Buckle 020 7220 0529 kbuckle@finncap.com Danny Smith 020 7220 0533 dsmith@finncap.com Mark Fidgen 020 7220 0536 mfidgen@finncap.com Oliver Toleman 020 7220 0531 otoleman@finncap.com David Loudon 020 7220 0530 dloudon@finncap.com
Market Makers Steve Asfour 020 7220 0539 sasfour@finncap.com James Revell 0207 220 0532 jrevell@finncap.com Russell Jackson 020 7220 0538 rjackson@finncap.com Ben Tonnison 020 7220 0535 btonnison@finncap.com
Investment Companies Johnny Hewitson 020 7720 0558 jhewitson@finncap.com Mark Whitfeld 020 3772 4697 mwhitfeld@finncap.com
A marketing communication under FCA Rules, this document has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This research cannot be classified as objective under finnCap Ltd research policy. Visit www.finncap.com
The recommendation system used for this research is as follows. We expect the indicated target price to be achieved within 12 months of the date of this publication. A ‘Hold’ indicates expected share price performance of +/-10%, a ‘Buy’ indicates an expected increase in share price of more than 10% and a ‘Sell’ indicates an expected decrease in share price of more than 10%.
Approved and issued by finnCap Ltd for publication only to UK persons who are authorised persons under the Financial Services and Markets Act 2000 and to Professional customers. Retail customers who receive this document should ignore it. finnCap Ltd uses reasonable efforts to obtain information from sources which it believes to be reliable, but it makes no representation that the information or opinions contained in this document are accurate, reliable or complete. Such information and opinions are provided for the information of finnCap Ltd's clients only and are subject to change without notice. finnCap Ltd’s salespeople, traders and other representatives may provide oral or written market commentary or trading strategies to our clients that reflect opinions contrary to or inconsistent with the opinions expressed herein. This document should not be copied or otherwise reproduced. finnCap Ltd and any company or individual connected with it may have a position or holding in any investment mentioned in this document or a related investment. finnCap Ltd may have been a manager of a public offering of securities of this company within the last 12 months, or have received compensation for investment banking services from this company within the past 12 months, or expect to receive or may intend to seek compensation for investment banking services from this company within the next three months. Nothing in this document should be construed as an offer or solicitation to acquire or dispose of any investment or to engage in any other transaction. finnCap Ltd is authorised and regulated by the Financial Conduct Authority, London E14 5HS, and is a member of the London Stock Exchange.
60 New Broad Street London EC2M 1JJ Tel 020 7220 0500 Fax 020 7220 0597 Email info@finncap.com Web www.finncap.com finnCap is registered as a company in England with number 06198898. Authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange
top related