Redeye states that the Q2 report came in weaker than expected, with both sales and costs surprising negatively. While the automotive ramp-up appeared to have paused in Q2, Redeye expects the momentum to be regained from Q3 and onwards. The number of car models launched per quarter has gone from an average of 4 in 2023, now increasing to 10 in 2024, and 25-30 is expected in 2025. Adding that the fitment rate in each car model should also increase as EU GSR 2024 is implemented since 7 July, Redeye expects the Q2 hiccup to only be a bump in the road. Redeye reduces its estimates and valuation range.

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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.

SEKm	2022	2023	2024e	2025e	2026e
Revenues	219.6	302.2	389.5	622.1	1,152.0
Revenue Growth	101%	37.6%	28.9%	59.7%	85.2%
EBITDA	-193.9	-127.7	-70.6	93.5	441.7
EBIT	-343.0	-282.9	-232.2	-70.5	306.7
EBIT Margin	-156%	-93.6%	-59.6%	-11.3%	26.6%
Net Income	-339.9	-283.3	-229.6	-56.0	306.7
EV/Sales	14.4	10.2	7.9	5.0	2.4
EV/FCF	-8.6	-9.4	-26.8	-83.3	8.0

Soft Q2 with slow sales and high costs - but positive momentum to be regained from Q3

Break-even pushed to Q1/Q2'25

Lowering estimates - Base Case SEK140

Key financials

Investment thesis