Ependion

Formpipe Software

Doro

G5 Entertainment

Bioinvent International

Arise

Smart Eye

* Currently unprofitable and cash flow negative, relying on capital markets for funding, which may pose risks in challenging market conditions.
* Automotive industry's cyclical nature and potential disruption from self-driving technologies could impact long-term competitive advantage.
* Limited ability to increase prices, suggesting potential pricing pressure from OEM customers.
* Uncertainty about the longevity of competitive advantage beyond the next decade, particularly with rapid technological changes in the automotive sector.

* Strong market position with significant growth potential, benefiting from regulatory tailwinds and expanding into new technologies like Interior Sensing.
* Asset-light business model with high scalability, allowing for growth without heavy reinvestment and potential for upselling to existing customers.
* Clear competitive advantages including economies of scale, strong OEM relationships, and first-mover advantage in a complex, high-barrier industry.
* Diversified revenue base across multiple OEMs and business units, reducing dependency on single customers or markets.
* Products contribute to societal good by improving road safety, aligning with sustainable progress through technology.

* Lack of consistent profitability, with operating margins, ROE, and ROA below desired thresholds or industry averages.
* Inconsistent earnings growth and stability over longer periods, potentially indicating vulnerability to market fluctuations.
* High goodwill-to-assets ratio compared to industry average, suggesting reliance on acquisitions and potential risk of future impairments.
* Absence of a consistent dividend history or growth, limiting appeal for income-focused investors.

* Strong gross profit margin and revenue growth, indicating a competitive product mix and potential for increased profitability.
* Solid financial health with current assets 1.5 times greater than current liabilities and manageable debt levels relative to cash flows.
* Efficient inventory and accounts receivable management, suggesting effective operational control and cash collection practices.
* Low occurrence of one-time charges, demonstrating financial transparency and consistent reporting practices.

* Management has struggled to deliver on promises consistently, particularly regarding the adoption rate of cars produced with DMS, leading to delays in expected revenue growth.
* The CEO's tendency to chase new trends before fully capitalizing on previous investments has led to concerns about capital allocation and unnecessary dilution for shareholders.
* The company lacks a clear CEO succession plan, potentially risking future leadership transitions and long-term strategic continuity.
* Smart Eye has faced challenges in managing its cost base, leading to liquidity issues and a necessary rights issue in 2022, negatively impacting shareholders.

* CEO Martin Krantz demonstrates strong industry knowledge, visionary leadership, and commitment to innovation, consistently anticipating market trends and maintaining Smart Eye's competitive edge.
* The company has a lean organization promoting self-direction and accountability, fostering innovation and adaptability within each operating unit.
* Management shows a strong commitment to innovation, with a clear strategic plan focused on scaling up DMS and achieving design wins in interior sensing.
* The company consistently communicates with investors, focusing on long-term business value and tying company success to its mission of saving lives in traffic.
* Significant insider ownership (12%) and founder involvement indicate strong alignment with shareholder interests and confidence in the company's future.

Smart Eye&#8217;s main competitor, Seeing Machines, today announced its largest design win to date.
&nbsp;
Deal includes both DMS and OMS, i.e., Interior Sensing  
The design win includes both Driver Monitoring (DMS) and Occupant Monitoring (OMS), meaning it&#8217;s a full interior-sensing deal. This shows that Seeing Machines should be counted on also within interior sensing.
&nbsp;
Customer likely Volkswagen 
The customer is referred to as a &#8220;leading German Automaker&#8221;, which we believe to be Volkswagen (with a total global market share of 11%). If the customer would have been BMW, Audi, or Mercedes, we believe the customer would have been described as a &#8220;premium automaker&#8221;. The design win was awarded through an existing tier-1 supplier, which we believe is Magna.
&nbsp;
Seeing Machines takes over the lead in the number of design wins awarded 
The deal spans over an &#8220;expansive number of vehicle models&#8221; and mass production scheduled from early 2024. After the deal, Seeing Machines states that it has won a total of 95 vehicle models (=95 design wins), which indicates that the deal indeed included very many models (65 more than our last research update). After this, Seeing Machines takes over the lead in number of design wins, just ahead of Smart Eye with 89.
Now, Smart Eye and Seeing Machines have won 11 car platforms each.
&nbsp;
8% of RFQ value of SEK 10bn now awarded 
The lifetime value of the deal is A$125 million, corresponding to SEK 815, &#8220;with significant upside potential&#8221;. We are not sure if this means new models within the same platform or just the same OEM. This means that SEK 0.8 bn has now been awarded out of the total RFQ value of SEK 10bn previously mentioned by both Smart Eye and Seeing Machines. Hence, we expect many more design wins to be awarded to both Smart Eye and Seeing Machines in the next 16 months or so.
&nbsp;
Redeye Base Case based on 35% market share &#8211; we reiterate our valuation 
While today&#8217;s news reduces the potential in the investment case, we had far from anticipated Smart Eye to win all RFQs. Our base case assumes that Smart Eye achieves a 35% market share. As such, we had not included Volkswagen in our estimates.
Due to this logic, Redeye maintains its valuation range.