Redeye thinks that with the rights issue completed, Smart Eye is now set to start its revenue acceleration that will likely result in c40% cash flow margins from 2026E. The last obstacle is reaching positive cash flow before running out of money - which Redeye expects to happen in Q4'24 with SEK60m to spare. For those daring to be long-term investors, and not speculate on short-term things, Redeye believes Smart Eye could be a multibagger from now and a few years out. Redeye raises its fair value range.

Smart Eye indicates slower ramp up in 2023-2025, but explosion in 2026

Smart Eye has recently made a commissioned study of the projected DMS volumes for 2023E-2026E. The first (base case scenario) was presented in a video published in connection with the rights issue. The second projection, published in the Q4 report, originates from the same study and represents a more conservative scenario. We think this message was not clear to the market, which viewed the latter projections as the final projection.

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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	2021	2022	2023e	2024e	2025e
Revenues	109.3	219.6	324.5	491.7	683.9
Revenue Growth	78.3%	101%	47.8%	51.5%	39.1%
EBITDA	-89.0	-193.9	-112.6	5.9	106.1
EBIT	-131.4	-343.0	-273.8	-163.3	-53.9
EBIT Margin	-120%	-156%	-84.4%	-33.2%	-7.9%
Net Income	-131.2	-339.9	-274.8	-163.3	-42.8
EV/Revenue	37.3	7.3	4.6	3.2	2.2
EV/EBIT	-31.0	-4.6	-5.5	-9.5	-28.5

Introducing projections for DMS adoption

We estimate Smart Eye to become cash flow positive in Q4'24 with SEK60m to spare

Valuation: Obstacles gone for those daring to be long-term investors - multi-bagger potential

Key financials

DMS market outlook – adoption rates

Smart Eye indicates slower ramp up in 2023-2025, but explosion in 2026