Fostock talk with PVDM

Event:
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Meeting with CEO Peter van der Made; Placement of rights issue shortfall.
Investment Highlights:
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We recently met with BRN’s CEO, who discussed the market opportunities available to BRN’s spiking Neuron Adaptive Processor (SNAP) product, as well as re-emphasising its advantages over current artificial intelligence processing.
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Dr van der Made believes SNAP is fast learning (requiring only seconds to undertake a task where it may previously take weeks under deep learning), being thousands of times faster than a CPU. SNAP’s neural nodes are able to process in parallel at the same time, its execution time independent of neural network size.
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SNAP’s ability to recognize patterns, as opposed to making calculations, underpins its autonomous learning capability, and no software is required. SNAP also consumes low power vs CPUs.
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Dr van de Made pointed to SNAP being foundry agnostic, which should facilitate its embedding into various chip manufacturers’ lines. The company is pursuing the business model prominently adopted by ARM, where an annuity income is built from licensing, royalty, and engineering agreements penned with major OEMs and semi-conductor manufacturers.
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Examples of OEM customers would include cell phone makers, and manufacturers of security and robotics. The company has also announced a partnership agreement with Applied Brain Research (ABR).
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The market size of the neuromorphic chip market is estimated to be $4.8b by 2022 (Markets and Markets). BRN is focused initially on targeting the security and drone segments for SNAP, so it may become the standard for drones to autonomously learn. It is from these segments that the company is expecting achievement of Milestone 4, which is validation and payment. Other market segments that BRN can target include internet of things (IoT), gaming, smartphones, mapping, and driverless vehicles.
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The company expects an initial milestone payment in the range of ca. $2M to $10M, with tranche payments likely to be triggered upon signing of an agreement, commencement of design, and when design is completed. Royalties would then follow commercialisation. We are optimistic that an initial milestone agreement may be achieved by end CY2016 although it may fall into 2017.
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BRN recently completed its rights issue, following successful placement of the shortfall. The total raised was $4.1M, providing the company with enough funding for what we anticipate to be at least 12 months.
Recommendation:
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We maintain our Speculative Buy recommendation on BRN. We believe chief catalysts for the share price including achievement of validation and payment from Milestone 4.