Seeing Machines: Underpinned By Road Transport Opportunity

Strategic commitment to the transport market
A net £15m (c A$27.5m) fund-raising announced in late November was approved by Seeing Machines, (SEE.L) shareholders at an EGM last week. While there is a dilution impact from the fund-raising, the money raised will accelerate DSS (Driver State Sensor) revenues by providing extra working capital to speed up the manufacturing cycle. It will also enable the group to significantly accelerate its moves into new markets. We expect the group to maintain its focus on the broad automotive/transport sector and control rooms. Therefore, while c 40x our updated FY15 earnings looks expensive, the business now has a far stronger foundation for growth.

Fund-raising: £16m gross (c A$29.4m), c £15m net
SM is raising £16m gross (c £15m net) via a share placement of 320m new ordinary shares at 5p. It is now setting out its plans to invest the money and we expect to hear news on the group’s new business plan around the time of the interim results in late March.

First CAT dealer signed up as a distributor
In December, SM announced it had signed up its first Cat dealer as a DSS distributor to the mining industry, as part of SM’s agreement with Caterpillar. We also understand that Cat-driven sales activities are gaining significant momentum.

European coach trials
Also in December, SM announced a trial of the DSS with Royal Beuk, a Dutch luxury coach company. The plan is for Royal Beuk to become SM’s distributor of the DSS to the coach and road transport sector in this region. However, this is strictly a trial, as SM has yet to agree a business model with Royal Beuk.

Forecasts: Costs move up, revenues rise from FY15
We have made initial adjustments to our forecasts for the capital raising. We have added A$1m of operating costs in FY14 while maintaining revenues. For FY15, we have increased revenues by A$2.5m, while operating profits are little changed.

Valuation: Underpinned by road transport opportunity
On our new forecasts, the stock looks punchy trading on c 40x FY15 EPS. However, we have not as yet included any assumptions on SM’s moves into new areas, such as coaches, and our haul truck sector forecasts remain conservative.

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