Investing in London’s Alternative Investment Market (AIM) offers me the chance of picking up some exciting under-the-rader small-cap stocks. Corporate broker Cenkos thinks one AIM stock should be valued as a tech unicorn (a value of £1bn or greater). That would represent upside of about 250% from its current valuation.
On a mission
That stock is Australia-based Seeing Machines (LSE: SEE), which is attempting to reduce the number of road accident deaths. This figure is currently more than 1.3m every year, worldwide. A significant proportion of these accidents is due to the fatigue or distraction of drivers.
The company’s AI-powered driver monitoring system (DMS) is embedded in vehicles and planes to detect drowsiness in human drivers and pilots. At the end of June last year, there were more than 447,000 cars on the road enabled with its DMS technology. And the company says that it has detected over 3.6m fatigue and distraction-related driver events to date.
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The company’s Guardian technology has been used inside commercial truck and bus fleets around the world since 2016. This system monitors the driver’s facial position and eye movements to determine whether they are alert and looking out the front windshield. If the system detects that the driver isn’t alert, it will sound an alert or flash interior lights. It can even apply the brakes if the driver doesn’t respond.
The opportunity
Guardian is already used in 26 countries. It’s connected to a 24/7 monitoring centre in the cloud that enables fleet owners customizable intervention and analytics options.
By 2030, it will be mandatory to embed DMS technology in all new automobiles in the US, EU, and China. This makes the opportunity extremely large.
Back in October, the company inked a deal with automobile parts provider Magna International to embed a camera in rear-view mirrors to monitor both the driver and occupants of vehicles.
And just today, Seeing Machines announced a non-exclusive distribution agreement with Mobileye. Under the agreement, Guardian will incorporate Mobileye’s suite of advanced driver assistance systems to alert drivers to a whole range of potentially dangerous situations. The companies will jointly market the combined offering to transport and logistics customers worldwide.
The stock and financials
At 7p a share, the company today has a market cap of £290m. The stock is down 21% over the past year.
This lacklustre performance is probably related to the company — which reports in Australian dollars (A$) — posting widening losses. For the full year up to June 2022, it generated revenue of A$54.4m. That was year-on-year growth of 15%, despite being hit by supple chain issues. However, the loss for the period ballooned to A$25.3m, a 45% increase over 2021.
This gives the stock a price-to-sales (P/S) ratio of around nine, which is very expensive. The company isn’t expected to become profitable for a couple more years. So one risk is shareholder dilution as it raises more cash. Otherwise it’ll have to prudently manage its cash position of A$59m (as of June 2022).
Overall, I like the long-term market opportunity here, especially as DMS becomes a mandatory safety feature in all vehicles. But I won’t be adding to my small position in the stock until I see evidence of sales re-accelerating and losses narrowing.
