A good place to park your money?

To the chagrin of UK motorists, Smart Parking was on to what Arthur Daly would dub a nice little earner: sign up a client such as a shopping centre, install technology such as automated number plate recognition and reap the rewards from issuing infringement notices.

Amid some keen top-up buying from chairman and 30 percent holder Chris Morris, Smart Parking shares rallied from 24c at the start of the year to an April 24 peak of 54c, valuing the company at close to $200m.

Since then, Smart Parking has slipped off the entry ramp and into the bollards after two recent downgrades that have led some investors to question its direction.

The company’s fortunes have also been muddied by the May 15 sacking of its UK CEO and finance director for behaviour unbecoming, although not of the illegal or criminal variety.

In terms of the dismissals, management says it’s onwards and upwards with uber CEO Paul Gillespie parachuted in to run the UK parking ops, which contribute most of Smart Parking’s revenues and all of its earnings.

The second arm of Smart Parking’s business, parking technology, sells high-tech parking hardware to local councils and the like but is not yet profitable.

In a May 17 update – just after the sackings – the company blamed bad weather for a decline in breach notices: 83,000 motorists were pinged in the March (third) quarter, but that was 40 percent down on a year previously.

Britain’s coldest weather in seven years meant fewer motorists were out and about and incurring fewer ‘fines’ as a result, while the conditions also hampered the rollout of new sites.

On June 14 the company said it expected to issue 180,000-190,000 breach notices in the second half. While that’s 21-27 percent higher than previously excluding the loss of a legacy contract, it’s still below expectations.

More pertinently, the company guided to a 20-30 percent decline in underlying second-half ebitda to $2-2.4m,  excluding $600,000 of ‘getting rid of CEO’ costs.

Broker Baillieu Holst expected $4.7m although the firm still forecasts full-year ebitda of $5.2m, well up on the previous $1.8m.

“The shortfall appears to be due to additional sales staff not meeting site acquisition targets and the flow-on impact of less technology rollout,” the firm says.

Management says its target of 15 new monthly car park rollouts is intact, while “the unit economics of our business remain excellent.”

But does the business model leave a “lot” to be desired?

As Forager Funds’ Alex Shevelev recently wrote on LiveWire, Smart Parking presented the ideal formula for parking lots wanting to banish overstaying or illegitimate parkers. The manual system of roving inspectors – in effect private grey ghosts – is inefficient.

Smart Parking’s formula? “Find a willing parking lot owner, agree a commercial arrangement and spend £15,000 ($32,000) on cameras and other equipment to fit the site out.

“With the new technology you can fine 100 percent of over stayers and collect £72,000 in revenue per year from each lot. Pay some costs and keep £50,000 per year. Easy.”

The trouble is, it’s too easy. Motorists change their behaviour and stop transgressing for a start. And when you can recoup your investment in three months, other providers are willing to do it at lower margins.

In Australia, the practice of private parking operators ‘fining’ motorists for transgressions has little legal authority. At best, it’s a grey area.

In the Old Dart, the answer’s clearer thanks to an Essex fish and chip owner called Barry Beavis. In 2015 the owner of the Happy Haddock and patron saint of motorists raised £6000 from the public to challenge a £85 notice (not from Smart Parking), but the Supreme Court ruled the penalty was legitimate.

On the technology side locally, Smart Parking has announced recent orders from the City of Adelaide, Melbourne’s Moonee Valley council, Coles and Telstra.

Forager says that technology such as parking by smart phone sounds sexy, but it was also alluring in 2013 when the company announced deals with the Westminster (UK), Rotorua (NZ) and Waverley (Sydney) councils.

 “You can check the financials for yourself,’ he says. “Let’s just say it didn’t amount to much.”

For the record, the technology arm generated $3.7m of revenue in the 2016-17 year; in 2013-14 it turned over $3.89m.

With a target market of 40,000 sites, the UK still presents an attractive market. If Smart Parking can achieve its 15-per-month target for new sites, that’s about $9m of incremental earnings a year.

But if management can’t reverse itself out of its current woes, investors will park their money elsewhere.

Hills (HIL) 22c

Such as in Hills, perhaps?

As Smart Parking struggles, Hills has decided that parking technology is a neat fit for its diversified industrial business and has entered the market here.

Hills’ push will focus on licence plate recognition (LPR), under its flagship brand Genetec. Genetec’s AutoVu LPR system automatically identifies and tracks vehicles, facilitates payments and bolsters security.

Rather than just taking happy snaps, Genetec AutoVu can relay data such as vehicle positioning, direction and speed straight from the camera. Additional video functions can also detect overstays, or monitor queues at pay stations or exits.

Another Genetec product, Traffic Sense, gives a live operational overview of a city district or facility such as an airport.

Hills’ business development manager Gary Byrne says the LPR market in Australia (and NZ) is experiencing unprecedented growth with the advent of ticketless parking in big off-street retail centres.

Back on Main Street, councils are moving away from the traditional ticket on the dashboard model to pay by plate, pay by phone or e-permit methods.

Byrne says it’s all about car park owners having a deeper understanding about customer behaviour.

“In sectors like retail this can lead to other revenue streams and marketing opportunities.”

The sector is well competed. But Hills claims the advantage of providing an all-in platform that incorporates its existing CCTV, video management and access control products.

“It’s a dynamic market that will continue to evolve with the uptake of electric and driverless vehicles,” Byrne says.

It’s not clear how much Hills’ parking foray will contribute to financial performance, which is recovering after a shabby few years that saw the company divest its famed Hills Hoist business.

The company has focused on the health sector, recently winning the contract for the nurse call system at Westmead hospital’s acute services building in Sydney.

Hills lost $700,000 on revenue of $136m in the first (December) half, but a debt demolition drive saw borrowings reduced from $15.7m to $4.3m.

Tim Boreham edits The New Criterion

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.