Cenkos note out21 Oct 2020 08:54
Cenkos note early for the market open
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Comment: Seeing Machines first announced a collaboration with L3 for flight
simulators in December 2018 with the partners having subsequently and successfully
delivered the world’s first fully integrated eye-tracking system into a Boeing 787 FFS
for a major Australian airline in 2019. With other airlinessuch as Emirates and Alaska
as well as the RAAF extoling the use of Seeing Machines eye tracking to improve pilot
training and safety in modern ****pits, the customers (major airlines and the RAAF)
are undoubtedly putting pressure on the simulator suppliers to formalise access to
the Seeing Machines technology. Clearly the commercial aviation industry is facing
unique challenges during the coronavirus pandemic; however, we believe the
adoption of this technology by the FFS industry is effectively delayed by around a
year and customers that have already committed to the technology are likely getting
impatient. We therefore believe today’s unusual announcement of a non-binding
MOU’s more likely reflects a desire by L3Harris to show its customers that it is close
to formally securing access to the technology, than a desire by Seeing Machines to
provide a status update. A potentially interesting knock-on effect of this
announcement though could be to wake the larger competitor in the FFS market,
CAE with c60% market share versus L3 Harris at c20%, and potentially introducing
some valuable competitive tension to secure the technology through a licence deal.
We note this technology is now publicly regarded by several major airlines
fundamental to the cUS$5bn pa simulator market, without eye tracking, it is virtually
impossible to know what a pilot is seeing or not in modern aircraft that have Heads
Up Displays. We iterate that our current valuation of 7.2p/share at 16% discount
rate, leaves all future license fees and royalties from the Aviation sector as upside.
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