Investments

Recent Buy: Smart Parking Ltd (SPZ.AX)

Smart Parking Ltd (SPZ.AX) designs, develops and manages parking technology that is used mainly in Australia, New Zealand and the UK. It listed on the ASX as an Australian small-cap in 2013 as “Car Parking Technologies Ltd”. Interestingly, and important for understanding their financial data, the company was listed prior to 2013 as “Empire Beer Group” and from 2007 until 2013, was a totally different company.

You’ll notice their technology and hardware in supermarket car parks (e.g. those sensors and green or red lights above parking bays) and street side parking (e.g. those in-road vehicle detectors that automatically register the presence of a parked car). The company also produces less noticed technology, like wireless communications devices and software for parking authorities like your local council, so they can monitor parking demand, use and payments.

They have a presence in various local councils and shires, with airports, major shopping centres, universities and other commercial parking environments.

Company Structure

The company operates in under two broad divisions.

The Parking Management division, accounting for 85% of revenues and operating solely in the UK, specialises in the management of car parks on behalf of retail customers, land owners and managing agents.

The Technology division operates over 17 countries and is growing particularly well in the UK, NZ and Oz.

Sitting on the board of Smart Parking is Chris Morris. Chris co-founded Computershare (CPU.AX) which listed on the ASX with a market cap around $50 mln in the 1990’s and today, is worth over $9 bln. He has plenty of skin in the game, owning a 30% share of Smart Parking.

Company financials

Usually when I invest I look for a company with a long history of revenues, earnings and dividends that are stable and growing. These companies can occasionally trade at a discount to their underlying current or future value, for example when the market hasn’t registered a growing demand for their product or service or after a left-field event that temporarily knocks profits. Occasionally though, my adventures uncover companies on the cusp of becoming profitable. They’ve usually experienced a few years making a loss either, sometimes due to only recently entering the market. Smart Parking is one of these. Tesla is a better known example, although it’s losses keep growing!

Smart Parking has steadily grown revenues, EBITDA and reduced its operating loss since 2013. At the last annual report, they seemed close to generating their maiden profit but didn’t quite get there. They lost a couple of substantial UK contracts during 2016 and 2017. This slowed down positive cashflow and earnings reports – one of these contracts was worth 26% of FY2016 revenues.

Nevertheless, SPZ have continued to grow underlying contracts in the UK, NZ and Australia. This included being signed as the preferred provider for Telstra and their IoT solutions business. The company has also been working with Google for their Smart City platform. They noted:

“Looking forward, the recent wins with Moonee Valley City Council, Wilson Parking NZ, Coles, Telstra and City of Adelaide will result in increased revenue in H2 FY18.”

A chart shows the trend a little better. I’ve put in my estimate of 2018 revenues, EBITDA and NPAT which amplifies the trend, but even without the forecast, there seems to be a clear trend toward profitability.

Why did I buy Smart Parking?

In its most recent annual report, management indicated that there were clear signs that growth had gathered momentum. Earnings, especially after adjustments for changes in reserves, retained profits and abnormals appear to be marching firmly into positive territory. The Internet of Things (IoT) is leading the opportunity for market growth.

SPZ noted that a recent report expected Smart Cities globally to grow at a CAGR of 19.1% p.a. between 2017-2025. This market is already worth in excess of USD$770mln. I suspect over the next few years, SPZ will grow revenue and earnings considerably. British councils estimate that up to 30% of city traffic is driving around looking for a park. That means there is a huge benefit to parking management systems both for end-users and parking space providers. Even driverless cars, which will be coming and going would benefit from being aware of the nearest available parking spaces when planning which city streets to turn down.

I thought the company could be worth substantially more than the 22 cents per share it traded at so I bought 9250 shares at 22 cents each.

Post-script

SPZ took a real run since I made the initial purchase. I’m in no way a market timer so this express re-pricing was entirely luck. After introducing position sizing rules to my personal portfolio I sold half my holding in SPZ. I’m not sure if I’ll make a Recent Sell post as there isn’t too much to say but if I get a bit of clean air in the next few weeks, I’ll put one out. If nothing else, it will help me clarify my own thoughts on the holding going forward!

Disclosure: Long SPZ. This post is for entertainment only. Do your own research. Seek personal and professional financial advice when making your investment decisions. I am not an investment professional or financial advisor.

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