After merging with Central Parking in 2013, effectively doubling its size, SP Plus (NASDAQ:SP) ("SP") is now the largest parking company in the U.S. In its main business, which contributes about 72% of total EBITDA, SP Plus manages 3,900 parking facilities encompassing some 2 million parking spaces in 346 cities around the country. Its clients include property owners and institutions such as municipalities, corporations, hotels, hospitals and universities. The company earns fees based on its general parking and labor management expertise. The revenue base is very stable because most of the contracts are independent of volume. SP leases about 20% of the garages and assumes all business risks. In its corporate name, the word "Plus" refers to related services like managing airport parking and
We like this company because of its cash flow stability, consolidation opportunities for stronger players, and economies of scale. Some 90% of contracts are renewed each year. Since the company collects money from parkers upfront and keeps its share before submitting the remaining to clients, the business doesn't require working capital. While it is the largest player, SP's market share is only about 10%, which leaves plenty of opportunity for growth through mergers and acquisitions. Being larger helps establish brand names and also offers advantages on schedule optimization and purchases.
We are particularly interested in SP at this time because management has completed the merger integration and now has started to focus on growth and improving margins and cash flows. Based on our estimate, we think the stock is worth at least $30 a share, with potential to be higher as management builds out its franchise.
From Third Avenue Management (Trades, Portfolio)'s Small Cap Value Fund third quarter 2016 commentary.
