SP Plus: A good place to park your money (NASDAQ: SP)
One of the most interesting companies I have come across in recent years is SP Company Plus (NASDAQ: SP). This company focuses on providing various mobility solutions, largely centered on parking lot management, monitoring collection of parking meters and other forms of parking enforcement services, and a variety of other related activities. Despite concerns about the weakening economy, SP Plus seems to be doing quite well. Even though the market has plunged in recent months, the company’s shares have risen nicely, thanks in large part to a strong performance in revenue and net income. While it’s clear that the easy money has been won, the shares are cheap enough that the company appears to offer further upside potential going forward. And because of that, I’ve decided to keep my “buy” rating on the company for the time being.
The picture just keeps getting better
In April of this year, I wrote an upbeat article about SP Plus. In this article, I called the company a unique game about mobility. I recognized that over the years the company had been on a rocky path from a fundamental standpoint. But overall, performance has been robust and positive. The company in particular was showing signs of recovery from the worst of the COVID-19 pandemic, leading to upside potential for near-term investors. This argument was further reinforced by the fact that I considered the stocks to be attractively priced. As a result of my findings, I rated the company as a “buy”, reflecting my view that it would likely generate returns that would outperform the market for the foreseeable future. Since then, my call has gone pretty well. While the S&P 500 is down 7.2%, shares of SP Plus have generated a profit for investors of 15.3%.
When I last wrote about the company, we had data covering the company’s entire 2021 fiscal year. Fast forward to today, and we now have data for an additional quarter, the first quarter of 2022. So far, the picture is really impressive. Consider income. In the first quarter of the year, revenues amounted to $349.8 million. This represents a 41.8% increase from the $246.7 million the company generated in the same quarter a year earlier. Based on the data provided, this increase in revenue is due to several different factors. For example, during the quarter, services revenue reached $184.4 million. This is 43.3% more than the $128.7 million generated a year earlier. According to management, this increase in service revenue was driven by growth in lease-type contracts and management-type contracts. The company also saw a significant improvement in revenue from reimbursed management-type contracts, a figure that rose from $118 million in the first quarter of 2021 to $165.4 million in the same period this year. All of these improvements were largely due to the increased volume of properties in which it operates thanks to the reopening of the economy.
As revenues grew, so did the profitability of the business. Net income for the first quarter totaled $10.7 million. That’s significantly higher than the $2.3 million reported a year earlier. Cash flow from operations went from a negative $1 million to a positive $26.4 million. If we adjust for changes in working capital, it would have increased more modestly from $14.2 million to $21.7 million. Meanwhile, the company’s EBITDA also improved, from $18.2 million to $26.4 million. The company’s profitability has been so impressive that in May the company even decided to announce a new $60 million share buyback program. While that may not seem like much, at the current price, the full exercise would buy back about 7.6% of the company’s stock.
Looking to fiscal 2022, management has high hopes for the company. Net income, to start, is expected to be between $56 million and $61 million, with a midpoint of $58.5 million. This median figure would translate to an 84.5% increase from the $31.7 million generated in 2021. Operating cash flow last year was $53.4 million, the adjusted figure s amounting to $83.7 million. Management expects a reading between $83 million and $98 million, with a midpoint of $90.5 million. And then we have the question of EBITDA. The stream waiting is that it’s between $110 and $120 million, implying a median reading of $115 million. Last year, this measure was only $95.2 million.
Using this data, it becomes quite easy to evaluate the company. On a forward-looking basis, the company trades at a price-earnings multiple of 13.4. That’s down from the 24.8 reading we get if we use 2021 results. 7 this year. And the EV to EBITDA multiple should drop from 11.3 to 9.3. To put that into perspective, I also compared the company to the same five companies I compared in my last article. Only four of these five companies had positive financial results. On a price/earnings basis, these companies range from a low of 11.8 to a high of 95.8. Only one of the four companies was cheaper than SP Plus. Using the price/operating cash flow approach, the range was 6.3 to 84.5. And using the EV to EBITDA approach, the range was 6.7 to 13.8. In both of these scenarios, two of the four companies were cheaper than our prospect.
|Company||Prizes / Earnings||Price / Operating Cash||EV / EBITDA|
|Heritage-Crystal Clean (HCCI)||11.8||7.4||6.7|
|CECO Environment (CECE)||95.8||84.5||13.8|
|BrightView Holdings (BV)||34.1||11.2||10.0|
|Li-Cycle Holdings (LICY)||N / A||N / A||N / A|
All the data provided at this time suggests to me that SP Plus is doing quite well. Although the company has gone through difficult times, it has bounced back well and the future looks quite bright. Add to that how cheap the shares are, especially on a futures basis, and the fact that they’re probably closer to fair value compared to other comparable companies, and I can’t prevent considering this a “buy” even after stocks have risen well in recent months.