Company overview - Smart Parking Limited is engaged in the design, development and management of parking technology. The Company operates through the segments, including technology, which consists of car parking technology products sold globally, and parking management, which operates in the United Kingdom and consists of the provision of car parking management services on behalf of third party car park owners and on sites leased by the Company and managed its own behalf. Its SmartApp is a mobile application, which enables drivers to locate vacant parking spaces. Its SmartEye is a sensor technology that gathers and transmits information for management, payment and compliance monitoring. It offers radio-frequency identification (RFID) solutions for payment, enforcement and management, including parking permits. Its SmartRep is a parking management software for both daily administration and long term planning. It offers SmartGuide, which identifies special status parking areas.


  SPZ Details

New contract from Wilson Parking New Zealand: Smart Parking won a new contract from Wilson Parking New Zealand to supply a sensor and bay-finding technology at nine new sites. The deal marks a continued cooperation with Wilson Parking New Zealand, which already has Smart Parking technology installed in 1,134 bays across four sites in FY17. Within the next twelve months Wilson Parking New Zealand expects to roll out up to nine new sites which will encompass over 3,000 parking bays. Smart Parking will provide its state-of-the-art parking technology with sensor enabled facilities to have access to real-time vehicle and parking space data. In combination, these technologies improve parking management, traffic flow, and overall customer experience as bay-finding system identifies available spaces and then guides customers to them using clear digital signage and LED lighting. Further, in Dec-2016, the company was awarded a contract to supply, install and maintain a city-wide deployment of more than 3,000 parking bay sensors, ANPR technology and smartphone application to the City of Cardiff Council.

Non-extension of Matalan contract to reduce the capital expenditure: After an annual review of the contract, Matalan have expressed a wish to remove ANPR (Automatic number plate recognition) technology in favour of a manned enforcement solution. The non-renewal will result in a short term reduction to the Company's revenue and EBITDA through the removal of 26 ANPR controlled sites. However, the management services division of Smart Parking continues to win and install its technology at new UK sites on a month by month basis, and maintains a positive pipeline for accelerating growth in installations. Further, the company maintains a pipeline of over 100 new sites to install beyond April 2017. Smart Parking UK retains ownership of 50 ANPR cameras and 41 Pay and Display machines that are currently deployed on Matalan sites. These assets can now be directed to new locations and expected to reduce future capital expenditure requirements enabling the company to continue its technology roll out programme.

UK Customers; (Source: company reports)

H1FY17 performance driven by Management services division: The six months to the end of December 2016 marked a successful period for Smart Parking with operational milestones and growth in Management Services and Technology divisions facilitating on-going global expansion. Revenue from parking breach notices which make up 75% of the revenue in the Services business were up 41% in constant currency on H1 FY16. During H1FY17, the company a successfully completed capital rising of $11.1 million for growth initiatives. Further, EBITDA improved by $2.1 million yoy (improvement of $2.8m in constant currency), while the group EBITDA margin rose 16% on the prior corresponding period. Importantly, NPAT of $0.4m for H1FY17 is a $1.5 million improvement from the prior corresponding period and was achieved despite significant currency fluctuations and the loss of the Asda contract in April 2016.
 

Improvement in Technology division; (Source: company reports)

H1FY17, outperformance was supported by significant revenue and margin growth in its Management Services business as it generated EBITDA of $3.5 million by growing at 22% yoy, while from Technology division EBITDA loss narrowed to $1.1m from $1.6m in H1 FY16.  The UK Services business continues to deliver growth through installation of Automatic Number Plate Recognition technology as it grew by 41% yoy with revenue from parking breach notices and contributed to 75% of the revenue in the Services business. Management expects the UK division’s performance to continue for fiscal year of 2017 given the on-going ANPR site installations. Further, to accommodate demand and in line with growth strategy, SPZ has added to its work force over the half year and employed an Operations Director in addition to a growing installation team, sales team and dedicated maintenance resource.

Group profitability H1 FY17; (Source: company reports)

Strengthening balance sheet: Smart Parking Ltd (ASX: SPZ) improved their operating cash flows by $0.9 million to $0.3 million as of December 2016 quarter as compared to the earlier quarter, led by deployment of technology solutions in the UK and the finishing of other technology projects.  Meanwhile, the group’s Management Services Division incurred $0.1 million of capital expenditure during Q2FY17.

     Group Cash Flow; (Source: company reports)

Strong pipeline with increasing client relationships: The group continued to win new contracts and announced for a key contract to be awarded to the group to supply, install and maintain a citywide deployment of more than 3,000 parking bay sensors, ANPR (Automatic number plate recognition) technology and smartphone application to the City of Cardiff Council. The group’s management Services division delivered a solid performance for fiscal year of 2016 driven by the major contract wins during the year. The division won Lidl UK contract to manage more than 30 sites and Matalan UK contract for managing more than 88 sites. New UK sites were added every month leading to a better market share, wherein the group now operates at more than 120,000 car parking spaces in the United Kingdom. As a result, the division’s FY16 revenue rose 33% year on year (yoy) to $28.4 million, and consequently, the EBITDA surged $4.7 million to $5.3 million.

Growth in UK Management Services; (Source: company reports)

Meanwhile, better customer service, deployment of technology on new and existing sites coupled with strong cost control also contributed to this division’s performance. Civil Penalty income surged 119% driven by the segment’s strategy of deploying technology solutions on manually operated car parking sites in the UK. On the other side, Management Services division incurred capital expenditure of $2.4m due to technology rollout but enhance their margins leading to an EBITDA growth by $0.7 million to $5.3 million. The parking management contract with Asda which was terminated on 30 April 2016 contributed revenue of $9.2m for fiscal year of 2016. However, the cameras are retained and directed to new sites which would enhance return on capital.

Outlook; (Source: company reports)

The group installed 76 sites so far in FY17 while more than 100 sites are in the pipeline for installation. The group is also offering installation at zero cost to the customer. The average CAPEX per site is £15,000 while the average monthly ANPR revenue per site is £6,000. Accordingly, the average EBITDA margin per site per month is 70%. As per the Technology division’s first quarter of 2017 performance, the revenues surged over 91% as compared to the same quarter last year, and subsequently, the EBITDA loss improved by 53% against prior corresponding period (pcp). This division has around $30 million of tenders, quotations and proposals in the pipeline for major markets. The group is also awaiting outcomes across Australia, New Zealand and EMEA for the technology division and continues to focus on Research and Development.
 

Providing effective parking management solutions around the world; (Source: company reports)

Focusing on rising market opportunity: Smart Parking is targeting the New Zealand market and especially Whangarei, which is the northernmost city in New Zealand with a population of 56,400. As per a survey in January 2016 conducted by the council, locating available parking was among ratepayers' biggest gripes; however the average occupancy of CBD car parks was just at 61% Monday to Saturday and on street car parks were at 73% occupancy. As a result, the Whangarei District Council introduced Smart Parking’s Smart Counter technology at five of the city’s underused car parks. Further, Verizon Communications acquired parking video analytics business for its booming Smart Cities business, while its ‘Smart Communities’ division lies within the IoT business. According to industry reports, Smart parking industry is expected to create several opportunities for cities and enhance the value of global parking operations to more than $43 billion by 2025. Moreover, industry expects the world to have 29 megacities by 2025 as compared to just two megacities in 1950. International Data Corporation expects the global market for IoT solutions to rise to $7.1 trillion by 2020 as compared to $1.9 trillion in 2013.


Technology division customers; (Source: company reports)

Recommendation: SPZ expects FY17 performance to be driven by the Management Services division and project wins in the Technology division. Consequently, second quarter of 2017 Revenue and EBITDA would be on track subject to seasonal quarterly impact. Meanwhile, the shares of Smart Parking declined 25.0% the last three months (as at June 12, 2017) and currently trading at its 52 week low levels. We give a “Buy” recommendation on the stock at the current price of $ 0.215


SPZ Daily chart; (source: Thomson Reuters)

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