Seeing Machines Limited’s Growth Story Stays On Track With Rail Deal

Railway trainEye-tracking technology specialist Seeing Machines Limited (LSE: SEE) announced another new deal this morning: the firm has signed a three-year strategic agreement with Electro-Motive Diesel Inc. (EMD), which is a railway locomotive subsidiary of Caterpillar.

Caterpillar’s mining division is currently Seeing Machines’ largest customer, so this is a clear vote of confidence in the firm’s technology, and the firm’s shares rose modestly in early trading this morning.

What’s happened?

Seeing Machines’ Driver Safety System uses eye-tracking and software analytics to detect driver distraction and fatigue, averting potential incidents. The technology has proved very effective in Caterpillar’s mining vehicles, and this new partnership will see the firm develop a version of the Driver Safety System for the rail industry.

No financial details were released in today’s announcement, but Seeing Machines currently has a cash balance of around A$22m following a capital raise last year, and would be profitable from existing operations were it not investing heavily in adapting its technology for new markets, such as the commercial fleet, automotive and aviation.

Investment is bearing fruit

The fact that this investment is bearing fruit so readily, in the form of today’s announcement, and the recent partnership with Samsung, reinforces the company’s credibility, in my opinion.

After all, Caterpillar and Samsung are two of the largest industrial and technology businesses in the world — and they both appear to believe that Seeing Machines’ eye-tracking technology has serious commercial potential.

Unique opportunity

Avoiding driver fatigue and distraction is a huge and costly issue for the transport industry. Drivers falling asleep at the wheel is said to be (it’s hard to prove) the biggest cause of death on Europe’s motorways. I’m sure it’s the same in the US, and elsewhere.

I don’t normally get excited about small-cap ‘story stocks’, but I am excited about Seeing Machines, which is regarded as the global leader in outside light eye-tracking technology.

The technology for the company’s technology to become standard in trains, lorries, aeroplanes — and eventually cars and vans — is massive.

Any technology that can be proven to prevent accidents caused by driver fatigue and distraction will be backed by fleet operators, vehicle manufacturers, insurance companies and governments: I rate Seeing Machines as a strong long-term buy.

Today’s best growth choice?

In my view, Seeing Machines is a great long-term growth buy, but there’s no doubt that the firm’s shares still carry a lot of risk. 

It's definitely a stock that belongs in a well-diversified portfolio, alongside less risky growth stocks such as the profitable and dividend-paying British high-tech company recently tipped as "The Motley Fool's Top Growth Stock For 2014".

Profits are expected to rise by 20% in 2015 and small cap expert, Maynard Paton, reckons this company could deliver 'double-digit total returns' over the next few years.

To find out the identity of this firm, click here to receive your FREE, no-obligation copy of this report immediately.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.