If we look hard enough, we can find good little profitable businesses who appear to be on a strong growth trajectory, however if they are cash flow positive and are growing revenues at the same time, then they carry less funding risk than many ‘stories’ on the ASX. Further, if they ever need to raise capital then it is likely for ‘expansion’, rather than ‘survival’.
Once you identify a business like this, what then becomes important is whether the business can execute on its potential. One of the supporting points I often look for is whether the leaders of a business have demonstrable evidence of delivering on business growth in the past.
It is through this lens that today we look at Smart Parking (ASX:SPZ) who are a real minnow on our market, however they have big plans ahead and despite their size are generating positive cash flow.
As the name may suggest, SPZ are involved with managing car parking spaces virtually through what is known as Automatic Number Plate Recognition (ANPR) - also known as License Plate Recognition (LPR).
The company operates in the United Kingdom, New Zealand, Australia (Queensland) and most recently, it obtained operations in Germany. The company currently manages 1,112 sites across the world, which was a 33% net increase on the previous year.
Source: Annual result presentation
The majority of the company’s revenue is made up of Parking Breach Notices (PBN), some 83% according to the company. The other major contributor is the Technology division which sells the company’s proprietary technology and hardware to external customers, plus internal ones.
The expected revenue formula is quite formulaic. The company has disclosed that on average, 0.4% of all parkers are in contravention per site, which results in 600 - 800 PBN’s per year per site, making this a scale game. The more sites SPZ operates, the more revenue they make. Also as SPZ embeds its technology deep into the parking sites, there is very little churn in customers (less than 5%) meaning much of the revenue is recurring.
As can be seen in the image above, the majority of the company's revenues currently come from the UK. In percentage terms it works out to be close to 90%.…
