Why You Should Park Some Cash in This Parking Facility Leader

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Standard Parking (NASDAQ: STAN) is a leading national provider of parking facility management, ground transportation and other ancillary services. Standard Parking, including Central Parking Corporation, its wholly-owned subsidiary, has approximately 25,000 employees and manages more than 4,200 facilities with more than 2.2 million parking spaces in North America. Its operations include parking-related and shuttle bus operations serving more than 75 airports. USA Parking System, a wholly-owned subsidiary of Central Parking, is one of the premier valet operators in the nation with more four and five diamond luxury properties, including hotels and resorts, than any other valet competitor. On Oct. 2, 2012, Standard Parking announced that it has closed its merger with the parent of Central Parking Corporation, which is now a wholly-owned subsidiary of the company.

Business Quality

Standard Parking is the leading provider of outsourced parking facility management services in the country with a operating history of more than 80 years. Its strong local presence and national footprint, with approximately 4,400 locations across the US and five provinces in Canada, drives economies of scale and operating efficiencies by standardizing processes and managing overhead cost. Standard Parking's clients includes some of the nation’s largest private and public owners, municipalities, managers and developers of major office buildings, residential properties, shopping centers, sports complexes, hotels, and hospitals and medical centers. Its industry end-market diversification also allows it to minimize exposure to any industry-specific volatility.

Standard Parking's business model generates visible and predictable cash flows, through a high proportion of fixed fee and reverse management contracts, which are not dependent upon the level of utilization of those parking facilities. Its contract mix with management contracts representing 92% of locations and 86% of gross profit, for the trailing twelve month period ended Sep. 30, 2012, moderates the impact of broader economic cycles. In addition, contract retention rates have approximated 91% over the past five years.

A number of positive industry trends should benefit larger outsourced commercial parking facility management providers like Standard Parking. Firstly, a significant number of national property managers and developers own or manage multiple locations as a result of past industry consolidation. They are likely to favor larger parking facility operators, such as Standard Parking, that can provide specialized, value-added professional services with nationwide coverage. Secondly, there is a growing trend of vendor consolidation with many parking facility owners and managers reducing the number of parking facility management relationships they maintain to reduce costs. Lastly, parking facility owners are increasingly outsourcing the management of their parking and related operations to independent operators, as a way of reducing their operating budgets.

Valuation and Financial Analysis

Standard Parking currently trades at a trailing twelve months P/E of 27.0 and a trailing twelve months EV/EBITDA of 15.6. Standard Parking achieved a trailing twelve months ROE of 22.9% and a trailing twelve months ROA of 4.8%. It has had a stellar earnings and cash flow historical track record with positive net income and free cash flow for eight consecutive years since 2004. It also operates on negative working capital, with payable days typically exceeding receivable days. Management grew Standard Parking's gross profit and EPS (adjusted for acquisition and merger related costs) by a CAGR of 3.9% and 9.2%, respectively, since 2005, its first full year post-IPO. Standard Parking is highly geared with a gross debt-to-equity ratio of 122% and net gearing of 105%. This is partly mitigated by a decent interest coverage ratio of 8.5 and strong free cash flow generation. It does not pay a dividend, but has spent $119 million on share repurchases. As of Sep. 30, 2012,
approximately $12 million remained available for stock repurchases under the June 2011 authorization by the Board of Directors.

Competitor Analysis

ABM Industries (NYSE: ABM) remains Standard Parking's only listed competitor, after its merger with Central Parking. Unlike Standard Parking, ABM Industries is not a pure play on parking facility management, but a diversified company that operates in four segments: janitorial, facility solutions, parking and security. The market currently values ABM Industries at a trailing twelve months P/E of 19.4 and a trailing twelve months EV/EBITDA of 9.3, a significant discount to Standard Parking. Despite having a lower gearing at 25%, ABM Industries' trailing twelve months and five year average ROAs at 3.4% and 3.8% respectively, are inferior to that of Standard Parking.

As of Sep. 30, 2012, Standard Parking and Central Parking operated 9% and 35% of its locations under leases respectively. Standard Parking is generally responsible for all the operating expenses of its leased locations
and it is susceptible to any increases in costs. In addition, certain of the leases to which Central Parking is party include provisions allocating responsibility for all structural repairs required on the property to Central Parking, including repairs arising from ordinary wear and tear. This results in potential liabilities associated with any structural repair obligations.

The supply of parking-related assets may increase in future, because some state and municipal governments have either sold or entered into long-term leases of public assets such as government- owned parking garages located in downtown commercial districts and parking operations at airports.

Approximately 22% and 31% of Standard Parking’s and Central Parking's collective bargaining contracts were up for renewal in 2012 respectively. These collective bargaining contracts represented approximately 5% and 6% of Standard Parking’s and Central Parking's employees respectively.

Conclusion

Standard Parking's recurring revenue business model and track record of positive net income and free cash flow for eight consecutive years justify its lofty valuation.


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