Redflex speeds to big profit


  • Ian McIlwraith
  • November 20, 2008

WHEN the chairman's starting spiel includes teasing a fellow board member for being a Collingwood supporter, and thanking New Zealanders "for infecting me with this lurgy", there's a clear message for investors this is a company confident about the road ahead.
Small wonder, then, that traffic camera operator Redflex Holdings' chairman, Chris Cooper, chose to forgo his sick bed to front an annual meeting where he could tell shareholders that not only are there several parties about to begin evaluating the company for a takeover, it is on track for a 40% pre-tax profit gain this year.
It might be a product some of us are philosophically opposed to, but Redflex has statistics on its side that suggest the use of speed and red light cameras has saved lives and limbs.
In the US, the source of more than 80% of Redflex's business, Mr Cooper concedes the battle is "cultural" opposition to using the cameras is still high, and even outlawed in some states.
Redflex is working on the theory that the more cities and states that trial and accept the efficacy of its products, the more pressure there is on others to drop their opposition and adopt their use.
Responding to one shareholder's question at the meeting, he even mused that the recession in the US may work to the company's advantage if authorities see traffic camera use as a way of replacing lost revenue although Redflex would always stress the safety over the monetary benefits of cameras.
On its forecasts, which point to pre-tax earnings of more than $21 million this financial year, the Redflex board and management reckon indicative takeover offers from the unnamed groups believed to be pitched at more than $3.50 a share are way too low.
It has acknowledged, however, that the first offers received were based only on public information, so it is giving its potential suitors a chance to look at management accounts and come back with a better deal.
Redflex has appointed Gresham Advisory, and lawyers Baker & McKenzie, to run the due diligence process.
Confidentiality agreements have been signed with various parties, with Redflex anxious to prevent any of its information leaking to rivals, and limited financial information will be provided for the putative bidders over the next few weeks.
Redflex is particularly sensitive at the moment because the market for its red light and speed camera services in the US is growing exponentially and the public tender processes there are becoming more bitterly contested.
In the past fortnight, American Traffic Solutions, the losing rival for a recently won contract in Phoenix, Arizona, has begun legal proceedings claiming up to $US100 million ($A155 million) in damages over the alleged use by Redflex of radar units without US Federal Communications Commission certification.
Mr Cooper told yesterday's meeting that the company's legal advice was that "we have little to worry about", but it is taking the litigation seriously and is well aware it might be wielded against it in current and future contract bids.
Redflex shares, which were heading to $2 before news of potential bids emerged, have clambered back above $3 and yesterday gained 23 to $3.28 virtually the same levels as a year ago, against a general market that has halved in value.