A penny stock penning an agreement with a FTSE 100 juggernaut is a pretty rare thing. And when it happens to a stock I already own, I’m even more inclined to notice it. Hence, I was delighted to read the latest news release from eye-tracking tech firm Seeing Machines (LSE: SEE) this morning.
Ringing endorsement for this penny stock
As deals go, this is top drawer stuff. Today, Seeing Machines announced a global framework agreement with top-tier oil giant Royal Dutch Shell to provide its distraction and fatigue tech — otherwise known as Guardian — to the latter’s fleet as part of its overall risk management plan.
Given that its workforce covers an estimated 500m kilometres every year (and what they are transporting tends to be rather flammable), this agreement makes clear sense from a safety perspective.
Naturally, it will take some time to fully implement this agreement. According to today’s statement, the installation of Seeing Machines’ tech is likely to begin this year. However, the sheer scale of Shell’s operations means the rollout might take “several years“.
Still, an endorsement from Shell is hugely significant in my eyes. If you have one of the UK’s largest listed companies making it clear how much importance they place on driver safety, I think it’s fair to expect others to follow suit.
Naturally, it’s very easy to become biased on stocks one already owns. However, with the company being the global leader in this space, I do find it hard to be neutral on the outlook for this part of Seeing Machines’ business.
Of course, today’s agreement is just one reason why I continue to hold the stock. Seeing Machines actually has its fingers in many pies at the moment. And, for me, the Guardian part of the business is actually the least exciting part.
The one that really grabs my attention is the huge earning potential of its automotive division. Back in August, the penny stock reported on the commencement of royalty revenues as over 100,000 vehicles loaded with its driver monitoring system (DMS) tech left showrooms. With the introduction of new legislation likely to boost demand, the company has already identified more than A$900m in potential revenue that it could/will now bid for.
On top of this, Seeing Machines has also been making moves into the aviation sector. This is the beauty of distraction-detecting tech — the sheer number of potential applications is hard to fully comprehend.
Naturally, any investment involves risk. Seeing Machines is no exception. Despite having a market cap of around £350m, this AIM-listed business is still unprofitable. This makes it particularly susceptible to general sell-offs. During the last market crash, for example, SEE’s share price fell from 5.5p in January 2020 to just 1.7p in March. It’s now at 9.8p, highlighting the huge volatility penny stock hunters should expect. One also can’t discount the possibility of future cash calls further down the line.
Along with would-be nickel miner Horizonte Minerals, however, Seeing Machines is one of few shares in my portfolio that I consider to be both very risky but also worth holding for the long term.
Time will tell if I’m fantastically right, utterly mistaken, or somewhere in between. For now, I’ll simply conclude that today’s news means I won’t be selling this penny stock anytime soon.
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Paul Summers owns shares in Seeing Machines Ltd and Horizonte Minerals. The Motley Fool UK owns shares of and has recommended Seeing Machines Ltd. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.