A Stock for Computer Vision and Machine Vision
Much of what makes the world of technology difficult to grasp for the average layperson is the gratuitous use of terminology. Sometimes, the same concepts are regurgitated using new names so the management consultancies out there can be seen as “thought leaders” and continue to charge the exorbitant rates they do. As crafty Southeast Asians on the banana pancake trail like to say, same same, but different. Still, names matter, and this led us to question what the difference is between computer vision and machine vision. In either case, we’re talking about equipping computers with the ability to make sense of the real-world using vision in much the same way humans do. We’re only now able to do this because we have hardware like GPUs and software like machine learning which lets us capture imagery in extreme detail and analyze it very quickly. So, what’s the difference between machine vision and computer vision? According to the world’s largest global vision and imaging trade group, AIA:
The lines between computer vision and machine vision have been blurring over the years and today, the term machine vision is used in non-industrial environments such as high-end surveillance, biomedical or life science applications, and even in the effort to improve an internet search engine’s ability to provide image-based recognition in search.
So, there you have it. Regardless of which term you prefer to use, there’s a little-known German stock that happens to be a leader in both machine vision and computer vision.
Founded in 1987 with a present-day market cap of $182 million, Stemmer Imaging Group (S9I:GR) is a leading international machine vision technology provider based out of Germany with 500 employees and 15 subsidiaries represented in 24 countries. The company has more than 5,000 customers across industrial production, healthcare, the entertainment sector, recycling, logistics, and e-commerce. With one of the most extensive warehouses for machine vision components in Europe, Stemmer Imaging procures the entire gamut of machine vision products – illumination, optics, cameras, cabling, image acquisition, computer systems, and accessories – from leading international manufacturers. All of this comes together with the company’s internally developed software solution which allows them to offer service/support and solution-oriented consulting. The end result is a profitable little company with around 44 million euros in the coffers to make acquisitions with. Some of that war chest came from their relatively recent IPO.
In February of 2018, the company raised $56.7 million in an oversubscribed IPO (that means that investors were really interested in buying shares). The initial offering priced shares at 34 euros (37.8 dollars), and today those same shares are trading at around 25 euros (27.8 dollars). That’s a fall of -26.5% in just under two years.
If the company’s story hasn’t changed in the last two years, then shares should be priced at a bargain today. Let’s try and figure out what changes may have transpired that result in the share price discount. Maybe one clue can be found when looking at their revenues.
Stemmer’s German Problem
(All numbers will be presented in Euros. Since the Euro is only 1.11 to the U.S. dollar, all our American readers can just pretend we’re presenting the number in U.S. dollars because the difference is so marginal.)
Around 48% of Stemmer’s revenues came from the German market, a number that’s actually been decreasing year over year. The company explains this further in their latest annual report.
The German Mechanical Engineering Industry Association estimates the German robotics and automation sector achieved revenues of 15 billion euros in 2018, a growth of 4% from the year prior. Of that, machine vision accounted for 2.7 billion. While the machine vision sector grew 17% from 2017 to 2018, growth fell to just 4.2% in 2018, and is actually expected to decline in 2019 – between zero percent to five percent. The pessimistic forecast reflects “worsening global economic momentum, geopolitical topics, and a tend to protectionism in western industrial nations.” In order to mitigate this declining growth, Stemmer is increasing their global footprint through acquisitions.
Diversification by Acquisition
In July of 2019, Stemmer acquired INFAIMON S.L. Group, a Spanish company that has many years of experience in bin-picking applications with subsidiaries in Portugal, Brazil, and Mexico, the latter of which they plan to use as a gateway into the U.S. market. In May of 2019, they acquired French company Elvitec, an established provider of camera solutions for machine vision, monitoring, and imaging. This expanded their product portfolio along with their international expansion and Stemmer was “particularly pleased” with how smoothly that integration went. And in February of 2019, they acquired a 1.4 million euro stake in Perception Park GmbH, a Hyperspectral Imaging (HSI) software provider, and something which Stemmer describes as a “future-oriented technology.” This last acquisition may be more about diversifying their products in light of the risk that other technologies might cannibalize machine vision in particular sectors. Says Stemmer:
With regard to the markets relevant to the machine vision sector, especially the automotive and manufacturing industries, emergent new technologies could render the machine vision sector and thus the market for machine vision products obsolete or superfluous.
Stemmer goes on to say that diversifying across sectors is one way to mitigate this risk.
While it’s great to see diversification through acquisition, the growth slowdown problem may be broader than just the German market. Stemmer’s latest annual report also cites “the cooling of the international markets in recent months, particularly in the electronics and automotive industries.” There’s also some internal turmoil at Stemmer that could be cause for concern.
After taking Stemmer Imaging public in February 2018, the CEO and Chairman of the Board, Christof Zollitsch, asked to terminate his contract prematurely in early 2019. Then, at the end of November 2019, the CFO resigned “to pursue a new professional opportunity.” Speculating as to why the company’s main man decided to jump ship seems pointless because we’ll probably never know. Nothing in the company’s announcement of these departures hinted at any animosities around the departures, and Christof Zollitsch’s LinkedIn profile still shows him as a Managing Director at Stemmer. This coincides with the company’s statement that he will “remain available to Stemmer Imaging in an advisory capacity.” As for the CFO departing, it’s likely that the new CEO and ex-CFO didn’t see eye to eye on the future direction of the company and decided to part ways. It’s important that everyone is rowing in the same direction since all the companies they’re acquiring need to feel like their new family isn’t entirely dysfunctional.
Last year we entered the longest bull market in history. Even though investors can’t seem to get enough of artificial intelligence, the music will eventually stop, and the decline of computer vision growth in Germany is a good example of this. For tech investors, a coming recession is particularly concerning given the volatility inherent to tech stocks. When the markets finally tank, it will represent a buying opportunity for investors with dry powder.
If Stemmer can decrease their exposure to any single country or region and gain traction in markets like the United States and Asia, that exposure can help diversify away some of this geographic risk. Multinational companies are more resilient in times of stress and can offset currency risk by having revenue streams that reflect different currencies. In the same way, investors who buy shares of Stemmer Imaging on the German stock exchange will also enjoy some currency exposure as they’ll need to buy shares in euros. If the problems the company is facing are temporary as we’re led to believe, then now may be the time to start accumulating a position using dollar cost averaging.
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