Tourlite Capital - Verra Mobility: An Attractive Business With Mid-To-High Single Digit Revenue Growth

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The pursuing conception was excerpted from this money letter.

Verra Mobility (NASDAQ:VRRM)

Verra Mobility is simply a leader successful proscription exertion and operates successful 3 segments: commercial, authorities and parking. The commercialized and authorities segments correspond 85%+ of revenues. Verra is an charismatic business pinch mid-to-high azygous digit gross maturation and sustainable competitory advantages.

Commercial services supply tolling services and usurpation guidance for commercialized fleets (i.e., rental cars). Verra is integrated pinch tolling authorities and has a gross divided pinch rental car operators. The business should use from 2 cardinal tailwinds including nan continued displacement from rate to cashless tolls and conversion of highways to toll roads. Currently ~65% of toll booths are cashless and that is expected to turn to complete 80% complete nan adjacent fewer years.

Verra is highly integrated into nan rental car strategy pinch long-term contracts and exertion that would beryllium costly to replicate. The marketplace statement is Verra’s rental car business has recession consequence arsenic it is tied to recreation demand. In addition, location is commentary that ridesharing and autonomous driving is simply a consequence to terminal value. We position maturation of ridesharing and autonomous driving arsenic a affirmative semipermanent catalyst for nan fleet guidance business.

The Government conception offers solutions to cities and schoolhouse districts including red-light, velocity and autobus lane camera enforcement. Most of these relationships are gross shares and Verra maintains ownership of nan hardware/cameras. Future maturation will travel from expanding offerings to states pinch constricted existent enforcement (i.e., only person reddish ray cameras) and breaking into nan 17 states pinch nary photograph enforcement.

While NYC is nan crown jewel, and take successful California, Florida and Connecticut would importantly move nan needle, nan value of fragmented relationships pinch smaller cities and municipalities is underappreciated. In a recession, authorities revenues should beryllium durable on pinch astir of Parking. Most authorities relationships are gross shares and Verra maintains ownership of nan hardware/cameras.

On November 2nd, Verra stock value had a antagonistic guidance to its 3rd 4th earnings, falling complete 15%. We judge location were precocious expectations arsenic a consequence of its beardown 2nd quarter, particularly for nan Commercial business. We identified 3 reasons for nan beardown 2nd 4th and weaker than expected 3rd quarter:

• A ample magnitude of recreation request was pulled up to nan 2nd quarter, TSA Passenger Volumes grew 26% from nan first to 2nd 4th and grew only 1% successful nan 3rd quarter.
• Hurricane Ian had an effect astatine nan extremity of nan 4th and opening of nan 4th fourth arsenic Florida did not complaint tolls for 18 days.
• Rental car buying successful nan 2nd 4th typically results successful a beardown title registration business. The 2nd 4th of 2022 was exceptionally beardown arsenic rental car companies bought much aggressively than normal. This resulted successful a $3.5 cardinal Q-o-Q decline, erstwhile this typically represents a $1 cardinal headwind.

TSA information remained beardown successful nan 4th quarter, up ~14% year-over-year but an ~3% diminution from nan 3rd quarter. Based connected our projections for 2023, Verra trades astatine complete a 7.5% free rate travel yield.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

Single banal ideas excerpted from money letters published by Seeking Alpha.