Smart Parking yesterday held their AGM and gave a comprehensive trading update (they're also meeting with us on Monday). There was a lot to like. It's a seasonal business and Q1 is usually a good quarter but comps to pcp are relevant and these all looked good. Fines were up 26% versus pcp and up 15% in the mature/not-really-mature UK business. Record revenue. Looks to be gaining operating leverage, although admittedly that is relying on an unaudited adjusted EBITDA number.

Site growth wasn't as rapid as previous quarters but look to have reaccelerated over the past 5-6 weeks to stand at 1193 sites. Even using the quarter end number site growth was 29% higher than pcp and 16% higher in the UK. They brought forward their 1500 site target by 6 months to 31 December 2024 and in so doing continued their happy habit of beating what initially look like aspirational site targets. Importantly the site target is based on organic growth only and so is likely now a conservative target.

When I've spoken to them in the past they think at 1500 sites they're a $70-75 million revenue company, generating $22-25 million EBITDA. That seems about right at the topline, although I'm not modelling quite so much to fall to EBITDA and hoping to get a pleasant surprise. But 1500 sites is just the start. When you consider there are 140,000 sites just in the territories they operate in, you start to get an idea of how long the runway is.

They spoke at length about wanting to move into new territories. I like the way they go about this. They prepare the ground by mentioning it to shareholders without a lot of detail. Six to 12 months later they're getting more specific about where they're focus is (Europe and the US). They talk about not biting off more than they can chew and just moving into one territory at a time. They talk about learning from the Queensland sojourn and focusing on territories that not only allow third party access to licensing information, but also have a code of practice or similar legislation in place. All good things in my view.

The negatives? They're all regulatory. It doesn't sound like there has been much movement on the Queensland side of things. That's not all that surprising given how negatively the government came out against the industry. Their best bet may be a change of government next year, which the polls suggest is likely. In the UK the government is considering submissions to its proposed new legislation and is not expected to give its verdict for at least six months. On the plus side that means a longer period of status quo, but on the downside the dark clouds loom for longer.

There's a good-ish argument that a microcap that has been a microcap for many years will always stay a microcap. I've said similar things in the past, particularly when you have the same people in charge. There's also an argument that change doesn't happen overnight and takes longer and will be harder than you first envisage. Smart Parking is evidence for the latter argument. Current CEO Paul Gillespie took the reigns in FY13 when revenue was $20.6 million. In FY21 revenue was...$20.6 million*. Roll forward two years to FY23 and revenue was $45.2 million and the momentum appears to be continuing. It's not vain growth either - they're increasingly profitable and cash generating. Sometimes it just takes time to get things humming.

[Held]

*admittedly COVID impacted but let's not the truth get in the way of a good story

Just got back from a Mauritian beach yesterday and catching up on a few updates and the like. Smart Parking delivered not the worst update of the pack. For these guys it's all about sites under management - what they call "the estate". Sites are up 13% on the previous quarter to 1043 (up 24% YoY) and they remain on track for their 1500 site target by the end of FY25. I imagine we'll see a new target in the next 12 months for FY27 or FY28.

Currency is a headwind given they make most of their money in the UK, but their cost base is largely overseas too so forms a natural hedge. They present an Adjusted EBITDA number, which excludes Germany's setup costs. I imagine this irits some people but they are transparent about the amount they're excluding and it is useful to know what the German investment is so I'm ok with it on balance. For what it's worth Adjusted EBITDA is $8.5m Q3 YTD ($8.9m in constant currency). This excludes $1.2m of Germany's costs. EBITDA grew slower in Q3 but it's traditionally a quieter period, with the current quarter being the bigger maker of bank.

On a regional front the UK is still the engine room and despite being the most mature region it is still growing at a decent clip organically. APAC (really just NZ) appears to continue to be growing rapidly (and profitably) despite the loss of new sales in Queensland. Germany is growing quickly off a low base but not at the speed they had hoped, resulting in some sales team remediation. It's a slightly mixed message as they have also suggested the rampup has been similar to New Zealand at the same stage. Germany remains on watch with the sales intervention hopefully gaining traction in Q4.

Cash on hand is down a little but Q3 is the quietest quarter and it's difficult to make conclusions without knowing how working capital and debt have moved. Overall the thesis remains intact and a key question will be what they do with what I expect will be a growing cash pile. Any dividends they pay would be unfranked so more aggressive buybacks and/or M&A appear to be the more likely options. Not a bad problem to have.

[Held]

Overall it was a solid update from Smart Parking last week with strong topline growth and decent cash generation being partly offset by unfavourable FX movements and increased overheads.

The key driver of the results is, as always, sites under management and on this measure they continue to deliver. The Group held 984 sites at the reporting date, which was up from 839 sites six months prior. They were keen to highlight that they've since exceeded 1000 sites, although you could argue QLD sites should be backed out of that number. Although the 1000 site target has been replaced by a 1500 site by June 2025 target, longer term holders will remember that 1000 sites by June 2023 was an earlier target and it deserves mention that they have beaten this. On the earnings call they reaffirmed the 1500 site target and I asked them to clarify if that meant ex-QLD, which they confirmed was the case.

Revenue was up 18% vs pcp, but up 25% from a constant currency perspective. UK growth is impressive given its relative maturity but the real driver is APAC, half of which we now know is - at best - on pause. Germany doesn't yet make a material contribution and will be on watch going forwards to ensure it does do so.

At the same time operating expenses appear to have jumped significantly and permanently. They strike me as a little sensitive about the investment in Germany relative to the return they're getting and I'm not fully on board with their practice of backing out Germany's costs from Adjusted EBITDA. However, it's all fairly transparent so you can rework it as you see fit. Overall a reasonable level of explanation was given to the cost uplift but going forwards I'd like to see that increasing at a lower rate. I have asked for clarification about what the disclosed monthly exit opex rate of $1.7m includes as it's not entirely clear, but that equates to a six month number of $10.2m - not too much higher than the disclosed half yearly opex cost, suggesting that opex growth may have slowed.

Free cash flow was strong but again it should be noted they are excluding Germany's costs from their definition of this. It's all very transparent though so choose your own adventure on what you do there. It also doesn't include Growth Capex (almost all of their capex isn't ongoing). I'm ok with that, others won't be. The balance sheet continues to look good and they have flagged a continuation of their share buyback (which they announced to the market they had started acting on a few days later). They've also started talking about dividends. I assume they will be unfranked given their overseas operations so I don't much see the point of that unless they've completely run out of ideas, but it is another indication that they do seem to act in alignment with shareholders.

Kudos for them holding an investor briefing. One of the themes I felt this reporting season has delivered is somewhat less of those and credit goes out to management who front up when the news isn't necessarily all good. Based on the attendees they do seem to be getting a little more insto coverage, although some of the questions seem to suggest the analysts hadn't had alot of exposure to the business yet.

In summary

The good:

• Site growth is the key driver and is tracking nicely. I haven't even mentioned the Technology segment of the business here as it's become an increasingly immaterial part of the business.
• As expected Revenue growth is following sites under management. Previously the CFO has said they could deliver $70-75m at the topline with 1500 sites. My model also supports this, albeit at the bottom end of that range. At that kind of number and given their propensity to gush cash, they'll be hard for the market to miss.

The not so good:

• Germany isn't yet shooting the lights out but it's early days. @Wini highlighted an Aldi win they'd had in this market some time back and they disclosed they now manage two Aldi stores, in deals signed off at the northern Germany region head office. According to Wikipedia Aldi Nord is the bigger of the two Aldi regions and has 2298 stores.
• I think the market was a bit disappointed to see the Cost base jump as it did. It's fair to say I was a bit too and this is on watch going forwards.

The ugly

• I think the prudent thing to assume is Queensland is not coming back and be pleasantly surprised if it does. I asked management on the investor call what learnings they took from this and someone asked something similar on the Strawman call. Both times they highlighted the lack of a Code of Practice in Queensland that does exist in other markets they operate in and that this would prevent a recurrence. I think the fact they were blindsided like they were suggests they and the peak body didn't do nearly enough work with the government to advocate/educate/put a code in place etc. and being proactive should be a key learning.

Overall I'm still happy to hold. I took a little profit at higher levels but it's still a larger holding and I think closer to a buy than a sell given it's pulled back a bit and should be supported by the share buyback if that continues.

Coming so soon after a trading update, SPZ's AGM was held this morning without a great deal of fanfare or controversy. A couple of new updates were given though. Smart Parking held 930 sites under management as at 31 Oct. That's up from 839 from 30 Jun and puts them on track to meet and beat their target of 1500 sites by Jun 2025. To add some context to that, according to them there are 150,000 sites available in markets they currently operate in - so their target is to manage 1% of those sites.

It also appeared that cash had rebounded in October and management included a waterfall to show movement of cash in the first four months of this year. They also forecast capex spend to be $4.5-5.5m in FY23. The nice thing about that spend is that it immediately starts paying for itself; it's not building capacity that you then have to go out and try to get someone to pay for.

A couple of other notes from the meeting:

• About 20 sites from the NE Parking acquisition (517 manual sites) have been converted to ANPR. Even they acknowledge it's not going as quickly as they would like but they don't need much more than that to justify the acquisition. I don't think of NE Parking as an acquisition per se - it's more like they paid a nominal sum to add a lot of sites to their pipeline and it may be a couple of years before they exhaust the pipeline.
• They're not yet seeing more challenging economic conditions being reflected in either traffic volumes or delinquency rates. In fact, October was a record receipts month for the U.K.

[Held]

Smart Parking released a presentation this morning prior to going on Coffee Microcaps. I don't think Mark has posted the videos yet but when he does it will be worth a watch as it includes a roll call of Strawman member favourites, including Alcidion (ALC), Spectur (SP3), Symbio (SYM) and AVA Risk (AVA). Anyway, the SPZ presentation included site and financial updates.

The good

• They continue to gain sites and were managing 900 as at 30 Sep (vs 839 at 30 Jun)
• Revenue for the quarter of $10.8m, up 21% vs pcp
• Substantial new record of breach notices issued
• APAC growth appears to be strong, at least in terms of breach notices, with PBNs in Q1 only slightly less than the first 3 quarters of last year combined

Not so good

• Cash is not so good. Cash is down from $11.4m at year end to $9.3m at 30 Sep. In part this can be explained by $1.8m of capex and $0.4m of share buy backs, but they also reported $2.7m of 'adjusted' EBITDA - where's that? Hopefully just some temporary working capital movements that will resolve by 30 Dec.
• Technology segment didn't really get a look in but the combined revenue numbers suggest it didn't contribute much to the total
• Also, despite the growth in revenue, the PBN number growth suggests they're not recovering as much per breach. FX will be playing a role here.

On Watch

• Definitely cash. I'd want to see a decent turn around in Q2.
• The UK macro and FX

On balance I think the message is still the same; they're delivering profitable growth. I expect them to be able to scale pretty efficiently too, with top line growth falling pretty efficiently to the bottom line. That last bit isn't as apparent yet as I might of originally hoped but I think you can give them a bit of a leave pass considering how early they are rolling out in Germany, QLD and NZ and the investment that will require.

[Held]

Smart Parking released its annual report on Friday and there were a couple of tidbits that signaled strong growth is continuing.

Sites under management (their key metric) grew from 839 on 30 Jun to 896 on 23 Sep. It's up 7% QoQ and 21% YoY. The number of breach notices issued for Jul and Aug was 119,663, up 26% compared to Jul/Aug 2021. Management "is seeing growth in the car count and contravention rates increasing".

Offsetting that is the bloody new UK conservative government, who are making Boris Johnson's regime look competent. Expansive fiscal policy, while the BoE is implementing contractionary monetary policy, has sparked fears of a longer and deeper recession. I view SPZ as somewhat defensive but not immune to such an event. Of more immediate concern is the impact it's having on the pound, which like all currencies is getting smashed against the USD but is also deteriorating against AUD. It's worth bearing in mind that most of SPZ's revenue AND costs are in GBP, but the downside of it being a profitable business is they don't offset. Truss & co have started walking back some of their more egregious policies in recent days and this has eased pressure on the pound, but they're not exactly inspiring confidence.

The UK Parking Code of Conduct is still withdrawn for further consultation.

Bottom line - bottom up it still looks good to me but I did take a little a little profit in my real life portfolio to reflect the risks above. It is still an outsized position for me.

[Held SM and IRL]

Snap @Rocket6 you just beat me to it

***

Busy day...start of a busy week...

Smart Parking's result this morning was better than I expected on most measures. Revenue was up 68% on FY21, mainly in the parking services business (i.e. fines) due to a 36% increase in sites under management and considerably higher yield per site. Adjusted EBITDA was $8.8m in FY22, compared to $2.2m in FY21 despite considerable investments and additional headcount for future growth and normalisation of other opex items which benefitted from COVID in the prior year. Adjusted NPAT went from a loss of $1.7m in FY21 to a profit of $2.2m I normally don't like to see an Adjusted NPAT but given the $6.9m one-off VAT win the company had over the HMRC in FY21 I think it does make sense in this case.

The company claims a free cash flow of $8.1m but they do exclude capex from this (but do include lease payments) on the basis that they classify this all of this as growth. Given the nature of their business I think it probably makes sense that they wouldn't incur maintenance capex and I can accept their reasoning (Claude is shaking his fist at the monitor right now) but if you don't just add it back - I think the valuation stacks up even if you do.

Some notes from the call and releases this morning:

• Sites under management (being a key metric) are scaling up nicely and on track for previous target of 1000 by end of FY23 and new target of 1500 by end of FY25
• New markets:
• NZ - 20 sites, EBITDA and cashflow positive. Target of 75 by June 2023. 3000 potential sites.
• QLD - 27 sites. Target of 80 by June 2023. 2000 potential sites.
• Germany - foothold of 4 sites. Target of 70 by June 2023. Dunno how many potential sites, lots - possibly twice that of the UK, which has 45,000 potential sites.
• Share buyback to continue while share price remains depressed
• Overheads grew substantially but management have indicated this was due to some investments for growth (e.g. Germany) and end of furlough schemes etc. and shouldn't grow at the same rate going forwards
• Acquisitions are performing at (NE Parking) or ahead (Enterprise) of targets
• Technology segment was EBITDA positive. This was a bit of a surprise to me. In previous conversations management's commentary wasn't that bullish in relation to that business.
• July and August to date have been record months
• Regulatory overhead of Parking Code of Practice is still on hold and government hasn't provided update (they've understandably been busy giving Boris the arse). Interestingly Paul stated Smart Parking and the majority of the industry would like to see most of the code implemented - just not the bits that cap their fines.
• Are seeking more acquisitions or markets. They are limited to juristictions that allow number plate owner databases to be accessed, which is why QLD is the only state in Australia they have thus far entered.

So overall very positive. I mentioned to someone this morning that there are some things I don't love. In particular I think they could do a better job of presenting the statutory accounts to be somewhat more aligned to the management accounts. I get they serve different purposes but GAAPs aren't completely prescriptive and other companies manage that better than they do.

I also don't love the word Adjusted in front of EBITDA and NPAT but I've always found them pretty transparent about what has been adjusted and you can backwork it if you want to. Those are relatively minor quibbles compared to keeping the business on track and delivering on the promises they've been making, which so far they seem to be doing.

Held here and IRL

Smart Parking this morning announced they were acquiring a business that operates 517 sites for $0.52m (effectively $1k/site). I'm trying to get my head around this. Sites under management is their key metric and this is a huge chunk at a very low acquisition cost. It is a 70% increase on their sites under management reported as at 31 Dec 21, it smashes their end of FY23 target of having 1000 sites under management and puts them on track to hit their FY25 target of 1500 managed sites two years early.

On the other hand there is no other financials provided in the release and given the price paid you would have to imagine they are being operated at a very low or no margin. These are all manual sites, which is a different business model to the Automated Number Plate Recognition (ANPR) technology that they operate. The opportunity for them is to convert them to ANPR and you would think they will be able to do this given their business model is to fund the installation of payment machines and cameras themselves and then recover the costs of doing so from the resulting efficiency gains in charging parking fines. The payback period is 5-7 months.

I met with management a couple of months ago and plan to do a bit of a write up on them after they release a quarterly update where I will also include risks but briefly they include:

• structurally reduced use of cars/parking following COVID
• UK parking legislation, which would cap their parking fine amounts at a lower level than they currently charge
• existential threat of self driving cars making paid parking redundant

[Held]

Just doing some due diligence post-half year reporting and came across this disclosure about an acquisition SPZ had then recently bought (the disclosure was in 2012 for an acquisition made in 2011). I'm not sure I've seen a more brutally honest summary of some of the issues facing the business - if you've seen a better one let me know! They couldn't even fit it all on one slide (the third dot point on the second page is particularly funny/scary):

Fortunately SPZ has come a long way in the past couple of years under new management. There are risks that I want to look into and write up over the next few weeks but overall I see this as a business that finally has clear short and medium term targets, is on target to deliver on those and will eventually get rewarded for that with a re-rate.

[Held]

Smart Parking released half year results this morning above guidance for both revenue and EBITDA.

This is now a consistently profitable company and cashflow positive company with increasingly bright prospects as it moves into new markets (Australia, NZ and Germany) and continues to broaden its offering. About the only thing that could be seen as a negative was the fact net operating sites (a key metric for them) fell by one in the quarter to 737. However, this was explained on the call as a combination of their decision to rationalise underperforming sites as well as the loss of one customer with multiple sites and was further allayed by the fact they disclosed sites under management had grown to 772 as at 18 Feb.

Some other highlights and thoughts from the call:

• margins have expanded to over 90% and they see the prospect for this to grow further (doesn't quite square with the fact they have flagged an influx of lower margin technology revenue in the second half)
• Starting to get traction in NZ and Australia with NZ EBITDA positive in 1H and Aust expected to be EBITDA positive in 2H
• Flagged confirmed order book of $4.8m for technology sales, most of which will be delivered in 2H (compared to only $0.3m in 1H). Gatwick Airport represents $1.3m of this number and the timing of recognition of this is currently uncertain.
• Expecting an increase in opex in 2H to support rollout into new markets.
• Long discussed new U.K. parking legislation has finally been tabled. Among other things this legislation will cap/standardise the parking fine amounts that can be charged in different locations and situations. This is a major and high-margin revenue source for the company. Overall the company mostly views the changes as positive, although they're still need to get some clarification of the interpretation of some of the legislation. I tried to get some more clarity around the financial impact of these changes but they weren't giving up their modelling at least until they got more clarity around those interpretations.
• The legislation increase compliance costs across the industry. By itself that's not great news but management believes it's a net positive as it will impact smaller operators most and will drive consolidation in the industry.
• Targeting 200 new organic sites annually (already had targets of 1000 sites by Jun 2023 and 1500 by Jun 2025).
• SPZ acquisition was completed in Aug 2021 for $1.5m and contributed $850k of revenue in its first 4 months of ownership.
• Q2 revenue actually exceeded Q1, despite being a traditionally quieter quarter. I wouldn't be surprised to see this slow somewhat in Q3 before beginning to grow again in Q4.

So overall a very good result. This is a business which is much de-risked from when @Rocket6 first starting writing about them but hasn't caught any love from Mr Market just yet, who may want to see what the impact of the new UK legislation (to be implemented on 31 Dec 2023) is going to be. With the already booked tech sales I think they could deliver revenue of $38-40m this year and earnings of $5-6m. I'm a big fan.

[Held]

UK retail foot traffic is a metric I keep a close eye as an owner of Smart Parking and since 'Freedom Day' UK shoppers have shown a propensity to want to get back to the shops. Foot traffic has comfortably sat at 80+% of 2019 levels since Aug/Sep, with the most recent survey recording 83%.

Having said that I am wary of the risk any further COVID lockdowns would have on this company, notwithstanding the reluctance the government would have on imposing them. I do note cases remain high at 40-50k cases a day.

However, crucially severe symptoms and deaths remain nowhere near the levels of previous outbreaks giving me confidence the risk of further lockdowns remain muted, Omicron impacts aside.

In their most recent update management provided a 1H outlook, which although buoyant appeared to indicate not just a quieter 2Q at the top line (expected due to seasonality) but also a lower EBITDA conversion percentage. I wrote to the CFO to ask him about this and to his credit I got an answer back within a couple of hours that it reflected lower contribution from breach notices, which is a higher margin revenue source. Q1 and Q4 are historically strong in terms of seasonality.

[Held]

You never know what you're going to get with AGMs. Sometimes they say virtually nothing about trading conditions and outlook and other times it's a feast. Smart Parking gave a fair bit of the latter, spending most of the meeting discussing FY22 YTD, 1H outlook and setting a new FY25 target. Highlights included:

• Oct YTD revenue of $11.4m (up 53% vs PCP - they are cycling versus a heavily COVID impacted comparable)
• Oct YTD EBITDA of $3.4m (up 130% vs PCP)
• Record EBITDA % margin - a fair bit made of the operating leverage they're generating
• 1H guidance of $16.4 to $16.9m revenue. I had them on $34m FY revenue so I suspect they'll exceed that comfortably.
• 1H guidance of $4.4 to $4.7m EBITDA. That implies EBITDA conversion will slow - not sure why. I think I'll ask them.
• On track to meet previously stated goal of 1000 sites under management by Jun 2023
• Gained another 20 sites organically just in October
• New target of 1500 sites under management by Jun 2025 (double what they are now)
• Looking to move into new territories/countries, with Germany being mentioned.

Overall extremely bullish. I think the 1000 site target is becoming more of a probability than a possibility. The 1500 site target is more aspirational (but there's nothing wrong with that). If they met both of those targets I think they're closer to a 60 cents company - the market seems to have been burnt by this company and very slow to give any credit for the turnaround.

[Held]

Credit goes to Rocket6 for posting about this one. After looking into it I took a position in RL and SM some months back and looking at today's update am glad I did. I think the market is underestimating how much that top line can grow as they get back to the sort of revenue/site they were doing pre-pandemic. On top of which they are rapidly expanding the number of sites under management with a target of 1000 by Jun-23, which they are tracking well to achieve.

I always try to find something to criticise but there's a hell of a lot to like. They seem to be responsible capital managers as evidenced by the price they paid for their recent acquisition (EV/EBITDA multiple of 1.0 to 1.3x) plus the way they're converting top line growth to bottom line growth. They seem quite transparent as evidenced by their disclosure of churn (sites lost) and the fact they're disclosing similar metrics now to what they were 12 months ago when things weren't looking nearly as rosy. Plus to my eye the valuation looks really approachable considering the speed of their growth and the fact they're profitable and churning out cash.

I would have no hesitation in recommending others to have a look.