James makes some interesting points but in the end the numbers disprove his concern.

in essence James is saying people don’t pay the fines because they don’t have to. The business is profitable and its revenue from PBN (parking breach notices) is climbing steadily. I’m confused as to how anyone could miss this point.

regulatory risk mentioned plenty in the past and a legitimate concern

You make a good point @GazD, nonetheless it would be interesting to know what percentage of PBNs issued are paid versus unpaid. And I would guess that the ratio could differ somewhat between geographies too eg Switzerland versus NZ.

Fair call @Stevie_B it’s not impossible that the US motorist could take a different stance and that would be a pretty major issue if it were to impair revenues there

I had some initial concerns about fines enforcement (and success rate) many years ago, but the margins and numbers -- demonstrated now over many years -- suggested to me this wasn't a big concern. Proof is in the pudding -- if this was a big issue, Smart Parking wouldn't exist.

@DVV1974 @Stevie_B We had a meeting with management three years ago (should still be accessible in the meetings tab?). This is well worth checking out if you are interested, and provided good insight into this issue. Some of my notes from that meeting re: fines are below for awareness.

Fines

• Collection rates: in the UK, tickets are 100 pounds. If paid within 14 days this gets reduced to 60 pounds. The fine is referred to a debt collection agency after 28 days, whereby the fine increases to 170 pounds. SPZ retain 130 pounds of this.
• Ticket average: of 100 tickets, 15-18 are cancelled for whatever reason - appeal, actual customer etc. 55 out of 100 would actually result in fines. This is where SPZ make the bulk of their revenue. 

As above, Smart Parking refer (relevant) unpaid fines to a debt collection agency. James' comment is right in that, depending on the region (lets use UK for e.g.), private operators cannot issue a statutory fine or infringement notice. But they can issue parking breach notices (for breach of contract) and these are still enforceable through a court (civil).

But that individual still risks a civil debt, similar to an unpaid phone or gas bill. A misconception with this argument is, if a breach notice or similar is not issued by a local authority, the fine can be ignored. That is not the case. Private firms can and do still take matters to courts -- and that is also why both the concept and the business model of a debt recovery agency exists. Using our UK example, it may be passed on to an enforcement agent (bailiff) for follow up, at which point the individual would incur bailiff charges for recovery of the debt, on top of the existing charge.

The simple reality, though? Most people will just pay the breach notice (intentionally designed to look like a fine by a local authority) and cop a fine of $60. Smart Parking's business model tells us that. The alternative is the possible stress, research and mental load that might be involved with a fine follow up, a final notice, a debt recovery agency, the subsequent process of that, a civil court becoming involved and then a relevant court enforcement officer chasing you up for the fine.

SPZ management has said in the past that they only pass on unpaid breaches to debt collectors if it's a repeat offender.

@DVV1974 @Stevie_B I agree with @Rocketrod "Proof is in the pudding .." is spot on.

If there were to be adverse developments on payment rates / collections, I expect we'd eventually hear about it in management commentary around any trends between PBNs and revenue. So it is not something I dig too deeply into, but I keep an ear open when listening to management commentary and Q&A.

IMO the risk there is small compared with the risk of regulatory change. The scenario to remain alter to a significant shift in public sentiment. I keep an eye out on press coverage in each of $SPZ's jurisdictions to detect any shift in the "social licence" for parking operators. This could be driven, for example, by behaviour of a competitor or something as ubiquitous as a cyber-security issue. (Easy to monitor via Google searches and AI)

And that's why the scaling of new territories, particularly US States, is so important for improving the over risk profile of this investment. The concentration risk in the UK is the key issue at the moment - although year by year this is improving, and long may that continue. Management are on to this!

A couple of points/clarifications -

I can't find the source i.e. email reply or Q&A briefing, but I think the CFO has told me they recover 50-60% of the face value of the PBNs issued. I don't know the breakdown of whether that's because people don't pay or because they are reversed on appeal or some other reason, but it gives you a ballpark number. HOWEVER, I don't believe they're recognising income as they write the PBN. They're recognising it on a cash basis and then accruing for issued but unpaid PBNs at year end, based on historical trends. It's kind of the opposite of what you usually see where income is recognised on invoice and then you provide for expected losses at year end. Theoretically both get you to the same P&L result, but it will change how the Balance Sheet looks. You can see the accrual here:

It's a couple of years old now but the CFO said at the time they had always recovered more than the accrual, which gives some comfort. As @GazD says, the non-recovery rate may be high but it hasn't stopped them building a successful profitable business. I don't know if there's any significant change by region.

In regard to the US, I don't think there's much contribution from PBNs. That may change in the future but currently it's a very different model there. They are being paid by parking owners to provide valet services, they're taking parking fees and passing them on to parking owners (presumably less a cut) etc.

Decent summary.

Just on the valuation, forward EV/EBITDA of 10x means about 35m EBITDA, which seems a bit optimistic to me, especially if it's not 'adjusted'.

The general point that a full year of peak parking flowing through will reduce the valuation bigly is true enough though.

Thank you for picking me up on US comment @Wini i hasn’t looked at the different revenue model in the US