Small Cap Value Report (1 Sep 2014) - SEE, VTU, HSP

1st Sep '14 by Paul Scott

10 comments 17078 reads

Good morning!

Seeing Machines (LON:SEE)

Share price: 6p
No. shares: 822.2m
Market Cap: £49.3m

This company is Australian, Listed on AIM, that is a world leader in equipment which detects driver fatigue, by interpreting facial movements & eyeball tracking. The product works, and is being sold in the mining sector, so it's a growth company, rather than blue sky.

An unexpected change in strategy occurred late last year, when a Placing was increased to several times the original amount, and an accelerated business plan adopted, involving considerably increasing the overheads to go after new markets. Personally I think that is the right strategy - i.e. if you have developed a product which works, then grabbing the opportunity with both hands seems to me only logical. However, opinion is divided over this, with some investors taking the view that the shares have become much more speculative than what they originally signed up for.

So it's loss-making now due to the increased overheads, making the shares more speculative than when it was a smaller company in the mining sector niche only. As with most speculative companies, the market needs a regular fix of updates, otherwise people tend to get bored and drift away - so the share price tends to decline in the absence of decent newsflow.

In my last report about SEE on 8 Aug 2014, I stuck my neck out & said that the shares could have bottomed out at 4.25p. I was right, and buying back in at that level has turned out to be a good trade.

Today's news - is a 15-year alliance signed by SEE with Takata, a Japanese safety products maker (seatbelts, airbags, etc) with sales of about £3bn p.a., so a reasonable sized partner to be involved with. This is an interesting point from today's RNS;

The formalisation of the strategic alliance is a result of a joint belief that driver-monitoring systems are one of the next major innovations in automotive safety due to the myriad of in-vehicle infotainment and mobile devices, which all compete for the driver's limited attention. According to the National Highway Traffic Safety Administration, one of every ten fatal crashes in the U.S. involves distraction

Although no financial details are given, this certainly sounds the most encouraging piece of news from SEE for quite a while;

The strategic alliance is responding to potential product…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Devlishcunning

1st Sep '14

RE seeing machines. A piece from the FT
GM to launch cars that can pick up on distracted driving: General Motors, the largest U.S. auto manufacturer by sales, is preparing to launch the world’s first mass-produced cars with eye- and head-tracking technology that can tell whether drivers are distracted, according to people with knowledge of the plans.
Could be a coincidence?

SevenPillars

Well, according to Sky News.

Seeing Machines has teamed up with US car giant General Motors to supply tracking devices for 500,000 vehicles.

http://news.sky.com/story/1328070/car-sensor-will-alert-you-if-you-get-distracted

CNBC

Seeing Machines, an Australian group listed in London, has signed an agreement with safety-goods maker Takata to supply GM with tracking devices for up to 500,000 vehicles over the next three to five years.

http://www.cnbc.com/id/101960759

Delpher

SEE: Topped up my holding today on the strength of the announcement. However the wording is interesting - there is no concurring message of support from TK Holdings or its parent and the arrangement is an Alliance and not an Agreement as it is with Caterpillar. Some information has been revealed on the basis of the Alliance such as the prior two years working together, the benefits to accrue to SEE and the term of15 years which seems a very long period for an alliance. The websites for Takata and its subsidiary TK do not reveal an facility for designing and manufacturing driver sensory monitoring technologies as do SEE yet the announcement included the following statement:
" The companies have been collaboratively developing driver monitoring technology for two years and Takata has recently secured a contract to deliver its first ever mass-manufactured implementation of a driver-monitoring system that will warn drivers of lapses in attention, reducing the risk of potentially fatal accidents."
Is it reasonable to assume that TK will be using the SEE technology and if so why isn't there a formal agreement? I suspect the next announcement regarding Takata will be the big one.

FREng

Paul

You say "I very much doubt whether any politicians will authorise driverless cars on the roads for a long time to come.".

There's a lot of political backing for driverless cars. In the Autumn Statement 2013, the Government announced its plan to review the legislative and regulatory framework for developing and testing driverless cars in the UK, reporting by the end of 2014. That review is underway, and there is a call for evidence currently open, seeking evidence to support decisions on the regulatory changes that will be required. See https://www.gov.uk/government/consultations/driverless-cars-regulatory-testing-framework

Personally, I think there are many problems to be solved before the technology should be certified as being as safe as an average human driver. But the absence of a scientifically sound basis for certification didn't prevent the introduction of high automation into commercial passenger aircraft, and the technology has survived the early crashes and become almost ubiquitous. I'd guess the same will happen with driverless cars.

Which may explain Seeing Machines (LON:SEE) 's urgency to exploit the market while it lasts.

Paul Scott

Hi FREng,

I very much doubt it. I could see that cars might have an autopilot function for motorways, but there's no way a computer could drive a car briskly & safely through busy town centres. Also, the pedestrians would just walk in front of driverless cars, knowing full well that they are pre-programmed to automatically do an emergency stop! At the moment the only thing that stops pedestrians is the worry that the driver might not be paying attention, and might not stop for them.

I could foresee other drivers quickly learning the programmed responses of driverless cars, and cutting in front of them, etc, knowing that they will pull back & won't be hooting, flashing lights & swearing at you!!

Therefore in my view SEE probably has a 20 year window to make money from road transport. During that time the next big growth area (consumer electronics) would be developed. So it won't be long before advertisers especially want eyeball tracking, to see which ads & window displays catch consumers attention. Plus electronic devices where menu items are selected by just looking at them.

Plus, bear in mind that many of us actually enjoy driving, so I wouldn't want to just passively sit in a car which drove itself, I'd be tearing my hair out urging it to overtake, and not just potter along at the speed limit!

Regards, Paul.

Paul

Time will tell, but seatbelts and airbags became mandatory, against significant opposition, and I expect that the automation that is currently in top-end cars will migrate to mass market cars quite quickly - possibly accelerated by legislation or reduced insurance premiums. Then some cars will be driverless, then more ...

I agree that there will be all sorts of behaviour changes if driverless cars become the norm. Why own a car yourself if you can call one up on your smart phone, much more cheaply, when you need it? Taxis, chauffeurs and couriers may become unnecessary. Driving for pleasure may become an eccentric hobby. The "reclaim the streets" activists may be able to walk where they want. Pedestrian crossings may become obsolete - and then reintroduced as a traffic flow measure, backed by pavement fencing or draconian laws against jaywalking.

But don't imagine that your scepticism (or my serious concerns about cybersecurity and safety certification) would be enough to resist the commercial pressures, or the desire to slash the number of road deaths and injuries, or the desire of politicians to align themselves with technologies that attract media attention and inward investment.

matt_smith101

I have to say I am completely with Paul on this one. The hype cycle is as observable as any other cycle. There's simply far too many complications. Predictions would have told us we'd all be driving full electric cars by now. How many do you see on your way to work?! The technologies will prevail but it will be an enormously slow process.

http://www.pewresearch.org/fact-tank/2014/08/15/chart-of-the-week-the-hype-cycle-of-emerging-technologies/

cig

So it won't be long before advertisers especially want eyeball tracking

This is a simpler problem than safety applications (static head in front of screen, no big deal if it gets it wrong on occasion) and thus already widely available, including as free open source packages. You do see reports of studies using the tech every so often in the news. Hard to see(sic) how Seeing Machines could have a material competitive advantage here.

Plus, bear in mind that many of us actually enjoy driving

Yes but you can do that on race tracks. If self-driving technology gets markedly safer than human drivers (arguably likely to take decades, and may not happen), the question on whether gratuitous human driving on open roads should remain allowed will come sooner or later.

shipoffrogs

"the question on whether gratuitous human driving on open roads should remain allowed will come sooner or later."

What a despairing thought!

torata

3rd Sep '14

As this is a few days after the original posting, not sure how many will see it, but anyway.

Re Seeing Machines, I just happened to see an advert for Hino Buses, which highlighted a driver monitoring system. A quick check on the site shows the dashboard mounted camera system is being advertised as 'new', and integrates with other safety systems, like lane line monitoring etc.
http://www.hino.co.jp/selega/safety/index.html#link3 (site is in Japanese, but it's about halfway down).

Further checking shows this runs on open source software developed by the "T-engine forum"
http://www.t-engine.org/t-kernel-2-1 (English)
but is integrated by Denso
http://www.globaldenso.com/en/technology/products/index.html (English, look for 'driver monitoring systems')
who, as one of the biggest automotive component manufacturers in the world, will no doubt be offering it to other automotive manufacturers.

Takata's turnover is around 10% of Denso and they have also blotted their copybook recently with a large number of manufacturers over faulty airbags. I can see the advantage for Seeing Machines (and Takata) in making such a tie up, but 15 years and 100% OEM exclusivity seems restrictive, and of course it all depends on whether Takata can deliver.

torata
(I hold Seeing Machines)

Small Cap Value Report (1 Sep 2014) - SEE, VTU, HSP

Seeing Machines (LON:SEE)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

10 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...