Foresight Auto — Foresight boosts stake in Rail Vision

Foresight Auto — Foresight boosts stake in Rail Vision

Foresight Autonomous (FRSX) continues to increase its profile in the autonomous vision systems market. This month, it showcased its ‘QuadSight’ vision system containing two infrared and two vision cameras for autonomous and semi-autonomous vehicles at CES in Las Vegas, as well as on CNBC. The group also increased its stake in Rail Vision (RV), which develops advanced safety systems for railways, by 7.9% to 32.6%. This took place at a favourable price via the exercise of warrants valuing the company at $28m vs our EV/revenue-based valuation of $77m. The exercise was the result of a successful test with a leading European railway, which has commissioned a paid pilot programme and has notified Rail Vision that it is considering procuring its technology for its locomotive fleet. We see the RV stake increase as mildly value-accretive (c 2%) in dollar terms, but this gain has been offset by recent NIS strength vs the dollar, leading us to maintain our valuation of NIS4.99 per share.

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Foresight Autonomous Holdings

Foresight boosts stake in Rail Vision

Increased stake in
Rail Vision

Software & comp services

21 January 2018

Price per share*

NIS3.32*

Price per ADR*

$4.75*

Market cap

NIS365m

Market cap ADR

$104m

*Priced at 18 January 2018

NIS3.43/US$

Net cash ($m) at 30 September 2017

21.5

Shares in issue

109.8m

Free float

67.3%

Code

FRSX

Primary exchange

TASE

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

23.9

(24.5)

57.8

Rel (local)

18.2

(28.7)

43.3

52-week high/low

NIS8.5

NIS1.7

Business description

Foresight Autonomous (FRSX) is a development-stage technology company in Israel developing ADAS systems based on technology developed by its parent company Magna BSP. FRSX also has a 32.6% stake in rail ADAS specialist Rail Vision.

Next events

FY17 results

February 2018 (est)

Q118 results

May 2018 (est)

Analysts

Anna Bossong

+44 (0)20 3077 5737

Richard Jeans

+44 (0)20 3077 5700

Foresight Autonomous (FRSX) continues to increase its profile in the autonomous vision systems market. This month, it showcased its ‘QuadSight’ vision system containing two infrared and two vision cameras for autonomous and semi-autonomous vehicles at CES in Las Vegas, as well as on CNBC. The group also increased its stake in Rail Vision (RV), which develops advanced safety systems for railways, by 7.9% to 32.6%. This took place at a favourable price via the exercise of warrants valuing the company at $28m vs our EV/revenue-based valuation of $77m. The exercise was the result of a successful test with a leading European railway, which has commissioned a paid pilot programme and has notified Rail Vision that it is considering procuring its technology for its locomotive fleet. We see the RV stake increase as mildly value-accretive (c 2%) in dollar terms, but this gain has been offset by recent NIS strength vs the dollar, leading us to maintain our valuation of NIS4.99 per share.

Year
end

Revenue ($m)

EBITDA*
($m)

PBT*
($m)

EPS*
($)

DPS
($)

EV/revenue
(x)

P/E
(x)

12/16

0.0

(3.3)

(3.4)

(0.05)

0.00

N/A

N/A

12/17e

0.0

(5.8)

(5.7)

(0.06)

0.00

N/A

N/A

12/18e

1.1

(11.5)

(12.6)

(0.12)

0.00

85.5

N/A

12/19e

14.6

(8.6)

(7.2)

(0.07)

0.00

6.9

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Meet QuadSight, Eyes-On and now Eye-Net products

Following successful trials with major automakers in China in 2017, FRSX’s launch of its new ‘QuadSight’ four-camera infrared/vision system for autonomous and semi-autonomous vehicles at the CES in Las Vegas has the potential to translate to new trials across more geographies. We expect the market reaction to live demonstrations of Foresight’s new cell-phone-based accident alert system for drivers and pedestrians, ‘Eye-Net’, to give an indication of its sales potential. To date, we have not incorporated any forecast sales from this product into our model.

Foresight helping Rail Vision with its working capital

On 10 January, Foresight invested $2.24m in warrant conversions in Rail Vision stock to increase its stake in the company from 24.5% to 32.6%. The funds are to be used by RV for working capital funds and we see the investment as value accretive (see next bullet point). We also note, however, that the increased investment in RV will likely trigger the expensing of equity accounted losses from RV in the 2018 accounts. This boosts our forecasts of FRSX’s reported net loss by $1.2m in 2018 but allows for a $1.5m gain in 2019 as RV turns profitable.

Valuation: Materially unchanged at NIS4.99 per share

While the 8.1% increase in FRSX’s RV stake represents a $4.0m increase in group value, based on our valuation of RV of $77m (down from $79m after adjusting for 2017e cash outflows) the net impact on the NIS valuation is offset fully by the 2.7% gain in NIS against the US$. This leaves our valuation at NIS4.99 per share.

Change in forecast: Increase in Rail Vision stake

Higher reported losses from equity accounting, no cash impact

We expect the 10 January $2.2m investment in Rail Vision shares to have a negative impact on reported equity accounted losses in 2018 by increasing the level of reported equity accounted losses and a positive impact in 2019, by enabling the reporting of equity accounted profits. None of this impacts the cash balances or cash flows of the group. With regards to cash levels, only the $2.2m investment itself is expected to have an impact on the balance sheet, with a reduction in our forecast of net cash at end-2018 falling from $10.4m to $8.2m.

The changes to the reported equity accounted results of Rail Vision reflects the requirement under IAS 28 for the equity accounted losses to be shown in the P&L, only to the extent that the equity losses exceed the value of the investment in the associate net of accumulated equity losses.

Prior to this investment, we forecast the net value of the group’s investment in Rail Vision after equity losses to be negative in 2018, preventing the inclusion of equity losses until an equivalent level of equity gains has also been generated.

The $2.2m investment increases our estimate of the value of Foresight’s net investment in Rail Vision from $0.3m at end-2017 to c $2.2m as of 10 January. As a result, it should be possible for Rail Vision to expense the full $1.2m of our estimate of its equity accounted losses, (representing 36% of our forecast of RV’s $3.6m loss) in 2018 rather than capitalising them, resulting in a $1.2m higher reported loss. Similarly, in 2019 FRSX should be able to show equity accounted gains in its P&L rather than using them to restore the balance of its net investment to a positive level.

Exhibit 1: Change in forecast

$m

EPS* ($)

PBT* ($m)

EBITDA ($m)

 

Old

New

% change

Old

New

% change

Old

New

% change

12/17e

(0.061)

(0.061)

(0.0)

(5.68)

(5.68)

0.0

(5.77)

(5.77)

0.0

12/18e

(0.106)

(0.115)

8.4

(11.45)

(12.63)

10.3

(11.50)

(11.50)

0.0

12/19e

(0.081)

(0.066)

(18.7)

(8.70)

(7.20)

(17.2)

(8.58)

(8.58)

0.0

Source: Foresight Autonomous historical data, Edison Investment Research. Note: *Normalised.

Exhibit 2: Financial summary

$m

2016

2017e

2018e

2019e

31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

0.0

1.1

14.6

Cost of Sales

N/A

0.0

(1.7)

(9.4)

Gross Profit

N/A

0.0

(0.6)

5.2

EBITDA

 

 

(3.3)

(5.8)

(11.5)

(8.6)

Normalised operating profit

 

 

(3.3)

(5.8)

(11.5)

(8.6)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

(0.4)

(2.5)

(0.9)

(1.1)

Reported operating profit

(3.8)

(8.3)

(12.4)

(9.7)

Net Interest

0.1

0.8

0.1

(0.1)

Joint ventures & associates (post tax)

(0.1)

(0.7)

(1.2)

1.5

Exceptionals

1.8

(16.1)

0.0

0.0

Profit before tax (norm)

 

 

(3.4)

(5.7)

(12.6)

(7.2)

Profit before tax (reported)

 

 

(1.9)

(24.3)

(13.5)

(8.3)

Reported tax

0.0

0.0

0.0

0.0

Profit after tax (norm)

(3.4)

(5.7)

(12.6)

(7.2)

Profit after tax (reported)

(1.9)

(24.3)

(13.5)

(8.3)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(3.4)

(5.7)

(12.6)

(7.2)

Net income (reported)

(1.9)

(24.3)

(13.5)

(8.3)

Basic average number of shares outstanding (m)

67.3

93.4

109.5

109.6

EPS – basic normalised ($)

 

 

(0.050)

(0.061)

(0.115)

(0.066)

EPS – diluted normalised ($)

 

 

(0.050)

(0.061)

(0.115)

(0.066)

EPS – basic reported ($)

 

 

(0.028)

(0.260)

(0.123)

(0.075)

Dividend ($)

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

N/A

N/A

1,175.6

Gross margin (%)

N/A

N/A

-51.8

35.6

EBITDA margin (%)

N/A

N/A

-1002.9

-58.6

Normalised operating margin (%)

N/A

N/A

-1004.9

-58.9

BALANCE SHEET

Fixed assets

 

 

1.4

0.9

2.1

3.9

Intangible assets

0.0

0.0

0.0

0.0

Tangible assets

0.1

0.5

0.7

1.0

Investments & other

1.3

0.4

1.4

2.9

Current assets

 

 

3.9

22.5

8.6

3.5

Stocks

0.0

0.0

0.0

0.0

Debtors

0.0

0.4

0.4

2.4

Cash & cash equivalents

3.8

22.0

8.2

1.0

Other

0.1

0.1

0.1

0.1

Current liabilities

 

 

(0.5)

(0.5)

(0.5)

(4.3)

Creditors

(0.5)

(0.5)

(0.5)

(0.1)

Tax and social security

0.0

0.0

0.0

0.0

Short-term borrowings

0.0

0.0

0.0

(4.2)

Other

0.0

0.0

0.0

0.0

Long-term liabilities

 

 

(0.1)

(15.2)

(15.2)

(15.2)

Long-term borrowings

0.0

0.0

0.0

0.0

Warrant conversion and other long-term liabilities

(0.1)

(15.2)

(15.2)

(15.2)

Net assets

 

 

4.7

7.7

(4.9)

(12.1)

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

4.7

7.7

(4.9)

(12.1)

CASH FLOW

Operating cash flow before WC and tax

(3.3)

(5.8)

(11.5)

(8.6)

Working capital

0.8

(0.4)

0.0

(2.4)

Exceptional & other

0.2

0.0

0.0

0.0

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(2.4)

(6.1)

(11.5)

(11.0)

Capex

(0.1)

(0.4)

(0.2)

(0.3)

Acquisitions/disposals

(1.3)

0.0

(2.2)

0.0

Net interest

0.0

0.8

0.1

(0.1)

Equity financing

6.3

23.8

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

1.2

0.0

0.0

0.0

Net cash flow

3.8

18.1

(13.9)

(11.4)

Opening net debt/(cash)

 

 

0.0

(3.8)

(22.0)

(8.2)

FX

0.0

0.2

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(3.8)

(22.0)

(8.2)

3.2

Source: Foresight Autonomous historical data, Edison Investment Research

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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach,46766

Israel

Covata — New customer wins

Covata recently signed up two new customers and signed an additional contract with an existing CipherPoint customer. After a busy quarter for product development, the company is moving closer to the beta launch of its data security platform (DSP).

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