Investors can believe their own eyes, they're not seeing things, they're Seeing Machines (SEE:AIM) - in a very definite new light. Results for the year to end June are to blame, beating the market's best guesses on revenue, and smashing profit forecasts. Analysts at broker finnCap had indeed expected a break into the black, but to the tune of about A$100,000, so the real performance is outstanding, Seeing Machines putting up a A$558,951 net profit.
For the past three months shares in the £21 million microcap have struggled, reversing from 3.4p to 2.8p, an 18% decline. That's against a 3% rise for the wider Aim index, the benchmark for London-listed minnows. But today's reaction should not come as a complete shock to regular Shares readers. I flagged in the magazine last month the scope for a shares rerating from the then, seemingly lowly, 3.25p. Yet the scale of today's rally goes beyond even the most upbeat of expectations, jumping 68% to 4.62p, as I write. They might end the day higher still.
After years of struggle to get its facial recognition technology accepted by large plant operators, Seeing Machines ambitions appear ripe for realisation. May's dealer network deal with US diggers giant Caterpillar (CAT:NYSE) takes the credit. It could conceivably be the launchpad to several similar contracts – trials are running now with mining giant BHP Billiton (BLT), for example. Overall, the company reckons A$20 million of sales sit in or near the pipeline.
Splashing the cash on R&D seems to be working. 'Investment is expected to deliver substantial revenue growth opportunities in the future as new applications open up in the next generation of automobiles and in health,' says chairman Terry Winters, 'and for improving the way people interact with machines, smartphones, tablets, PC's.' That's some interesting new market to tap down the line.
But let's not get too carried away, Seeing Machines still has plenty of challenges, not least cash burn. Yes, it has A$835,000 of net cash on the books, yet most of this would have stemmed from the A$1.9 million cash call during the year. Having effectively chewed its way through A$786,000 of cash during the year, it clearly needs to scale these new sales quickly, and collect payments, if it is to avoid the possibility of a new cash call down the line. 'Cashflow was weak as the expansion drew in working capital, but that has been funded by a placing in the year, to leave net cash of A$0.8 million at June,' spells out finnCap's Lorne Daniel.
But for now, let's celebrate this little success story. 'We are lifting our 2014 forecast to 45% sales growth this year,' says finnCap's Daniel, 'driven by DSS sales to the mining industry, rolling the technology out to their mines across the world, but also through the Caterpillar dealership network seeking to retrofit mining trucks.' That means revenues could jump to A$17 million this year, and on to A$22 million next, implying taxable profits of A$3 million in 2015. Matching these expectations could mean more super-charged share price gains too, as long as management keeps its Seeing Machines on the ball.