Smart Parking Pty Ltd (ASX: SPZ) reported its full-year results today, with revenue increasing 21% to $54.3 million. However, Smart Parking’s FY 2024 profit was $3.7m, down 42% on FY 2023. This decrease was partly due to an unfavourable foreign exchange movement of $1.4m (FY23: gain of $1.2m), and prior year favourable tax adjustments of $2.1m related to historical tax losses. Diluted earnings per share dropping to 1.05 cents per share from 1.82 in the prior year.
Profit before income tax was down 10%, but “underlying EBIT” was up 10%. Employee benefits expense grew by 19%, driven by an increase in the UK minimum wage. Depreciation and amortisation increased by nearly 30% due to the expansion of sites under management.
If you’re happy to grit your teeth and take management’s preferred metric of adjusted EBITDA it improved to $13.9 million compared to $11.5 million in the prior year. The big mover in this number is the previously mentioned FX swing. Other adjustments include removing professional fees related to evaluating business acquisitions, which may not be as infrequent for a company with ongoing acquisition activity. Professional fees in relation to regulatory matters were also removed but could also be considered somewhat recurring.
On the other side of the ledger, the company capitalised $960k in development costs. However this was not backed out of adjusted EBITDA. Worth keeping an eye on going forward.
The parking management segment, which includes ANPR (primarily parking tickets), accounts for 94% of revenue and grew by 25%. This was offset by the technology segment, which primarily supports the parking management division through SmartCloud and bay monitoring technology. It saw revenue decrease by 25% on a low base. For a more detailed discussion of the business model, consider my Introduction to Smart Parking. However, please bear in mind that the Smart Parking share price is now 40% higher than the price when that article was published just 3 months ago.
The company had $7.2 million in cash at 30 June 2024 down from $10.7 million in the prior year. The cash burn was driven by $7.7m in payments for acquisitions. Ignoring those acquisition payments, Smart Parking would have generated over $5m of free cash flow. The company almost eliminated its debt, paying down about $1m during the year.
Smart Parking generated $13.5 million in operating cash flow, an increase of $4 million. The primary driver in the decline in cash balance was the $7 million cash-funded acquisition made during the year. Excluding leases the company is now debt free as of August 2024 having finalised the Coronavirus Business Interruption Loan.
The Smart Parking share price has had a strong few months rallying from below 40 cents in February to a high of 63.5 cents in mid-July. Given the drop in profit it’s no surprise to me to see the market taking some profit and shares being sold off. At one stage the share price had dropped 15% to 47 cents before recovering to finish the day at 54 cents.
Parking Breach Notices (PBN) numbers increased by 22% compared to the prior period. PBN receivables grew by 25%, mirroring the expansion of parking management services. PBN receivables will naturally increase as revenue grows, it’s important to monitor the ability to collect those fines. The increase is much lower than previous years and well below the 62% increase in receivables last year.
Smart Parking had 1,424 total sites under management at 30 June well within striking distance of the company’s goal of 1,500 sites by the end of the calendar year.
While the number of sites and PBN’s issued continue to grow, PBN’s per site are declining albeit at a slow pace. From a peak of 646 per site in 2022 the PBN per site in 2024 is now down to 600. When asked on the call CFO Richard Ludrook noted that the acquired sites had impacted this as well as a decline in average tickets per site in the NZ market. As more sites are acquired the average has come down.
Smart Parking (ASX: SPZ) Site Growth & Geography Performance
Smart Parking has continued its strong performance across its established markets, with notable expansion in New Zealand, Germany, and Denmark.
The New Zealand business continues to thrive, reporting a 56% revenue increase to $4.6 million, with Parking Breach Notices up 70% year-over-year. The New Zealand business continues to disrupt the incumbent competition with management speaking glowingly of its performance on the earnings call. The acquisition of ParkInnovation in Germany and Local Parking Security Limited in the UK has continued to bolster the company’s presence across Europe, with a number of manually operated sites providing the opportunity to upgrade to ANPR technology.
Outside of the presentation, it was noted by management that they continue to review the US market.
The US provides an enormous opportunity with varying levels of technological adoption, presenting both opportunities and challenges. The move could further enhance the company’s global footprint, leveraging its proven expertise in parking management or prove challenging and bring with it acquisition risk. The company does have good form behind it when it comes to acquisitions.
Smart Parking (ASX: SPZ) Regulatory Update
The UK government is long overdue on a verdict for the updated code of practice for private car park operators having previously temporarily withdrawn the private parking code in June 2022.
The British Parking Association (BPA) and the International Parking Community (IPC) have since come together to provide a Single Code of Practice. The aim of the code is to raise standards and deliver greater transparency bringing both industry associations into line. The code updates of which Smart Parking and its competitors already implement a number of themselves are as follows:
- Introduces an Appeals Charter, creating clear parameters for motorists to appeal against a parking charge
- Mandates a 10-minute grace period for motorists
- Provides consistent rules for private parking operators
- Requires clear signage to help motorists navigate parking on private land.
- Ensures the protection of the most vulnerable in society, with no decrease to the deterrent for abuse of Blue Badge bays or those who choose to park selfishly, putting their own convenience above the needs or rights of others.
- Maintains a cap on the parking charge at £100 reduced to £60 if paid within 14 days.
Private Parking Operators will implement the new single Code by 1 October 2024 with all existing sites needing to be updated by December 2026.
CEO Paul Gillespie spoke confidently that the UK issues were moving in the right direction with the overall outlook appearing positive.
The Queensland segment of the business remains on hold with ongoing discussions between Smart Parking and the Transport & Main Roads department. The department committed to a draft code of practice, based on the UK code, to be reviewed by the Minister in September. Gillespie was again upbeat on the potential outcome but did note that the upcoming state election may delay the result and it may not be until Christmas that the company has a better idea of the way forward in Queensland.
Given how strong the previous comments were against the ability for third parties to access motorists’ information from the department it will be interesting to see if a new minister’s view might change that.
Smart Parking (ASX: SPZ) Financial Performance and Valuation
Smart Parking continues to show signs of operating leverage as acquisitions continue to integrate into the business.
With a share price of 54 cents, Smart Parking’s market capitalisation is around $188 million. With a profit of $3.8 million, the company is trading at an earnings multiple of approximately 51 times. For a company growing revenue at 20%+ you may be able to mount a case for it being fairly valued if it can begin to flow to the bottom line. For a company with potential regulatory headwinds and a profit that has gone backwards in 2024 it may be a little more difficult to justify.
While the prospect of government intervention still weighs on the company, management have shown consistently that they understand their business well, and can execute their strategy of acquiring sites and upgrading the technology
I am expecting that scale will lead to greater operating leverage and improved results. Management’s drive to expand further into Europe and the US, where I believe technology adoption is at an early stage, should be a significant driver of growth in years to come. Therefore I am happy to continue to hold.
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Disclosure: The author of this article Nick Maxwell owns shares in SPZ. The editor Claude Walker does not own shares in SPZ. Neither will trade SPZ shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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