Colin Linkedin15 Aug 2024 13:03
Further analysis of the announcement from Smart Eye of a SEK 700m contract extension presents some very interesting observations. The announcement crossed the wire at 1:00pm CEST on Aug. 14. But as this chart from Yahoo shows, most of the reaction took place in the first minute after the release. Yahoo shows 140,860 shares traded in that minute. That isn't enough time for investors to even open the e-mail and read the contents, let alone consider carefully the implications of the announcement and place an order. So that rise must be algorithmic trading. The extension is for SEK 700m of revenues over a 7-year period, but Smart Eye's market cap increased by about SEK 275m in just one minute. That's about 40% of the entire value of the extension.
Responding to a question posed on LinkedIn about the announcement, Smart Eye CEO Martin Krantz commented: "These are 35 new vehicles [models], they are added to the 24 [models] we won in March 2020. We also have won a few more models along the way so we have stacked up 60+ car models on these five OEMs. As you might have seen some GM models are in production as well as Volvo EX90. Most of them will come into production later this year, 2025 and 2026, with 100% take rate in Europe."
By saying "most of them will come into production..." Krantz has provided guidance that not all of the original 24 model wins are yet at SoP, some 4 years and 5 months after the March 2020 announcement. This is evidence that OEMs can, and do, change their plans, and that these announcements are not guarantees. Caveat emptor.
Smart Eye clearly wants to allay investor concerns about growth in delivery volumes, license royalty revenues and cashflow, particularly for this year. The easiest way to do that is to publish quarterly cars on road data which confirms the management narrative of delivery growth. But Smart Eye refuses to do that. Another way would be to break the automotive revenue line in its reporting three ways into: automotive NRE revenues; automotive license revenues; and AIS revenues. But it won't do that either. So every metric that an analyst or investor could dive in to to confirm what is being said is obfuscated.
Ultimately this is an issue between Smart Eye and its investors. But Smart Eye cannot survive long term by growing low margin NRE, and at some point soon it will have to find the working capital to build the AIS inventory for the SEK 150m order. At an estimated ASP of SEK 2000, that implies about 75,000 AIS units. Smart Eye publishes its second quarter results next week. Maybe we will have answers to all these questions then.
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