Lo-Q: a step up in scale

Nearly a year ago, in April 2010, shares in the Alternative Investment Market-quoted Lo-Q PLC (LON:LOQ) were trading for 111.5 pence. Roll on 11 months and the firm’s shares have improved by some 35 percent to 151.5 pence amid increasing revenues and profits.

The company, which develops and sells queuing systems for theme parks, has also benefited from positive sentiment after the appointment of Tom Burnet as its new chief executive officer. Although Lo-Q had been producing a steady return for investors, members of the firm’s board felt that it was time for a change of direction.

“The company had come to a strategic crossroads,” says Burnet. “It was producing a nice profit with good cash flow, but the board thought ‘is that how we want to stay or is there a bigger prize worth going after?’”

Appointed last October, the new CEO previously ran much-larger businesses when he was at two FTSE100 firms. Immediately prior to his appointment at Lo-Q he served as managing director of Serco’s Defence Operations division and before that he was MD of QinetiQ’s Capability Support Division.

Lo-Q’s flagship offering is Q-bot. This is a handheld unit that park visitors can rent. After making a reservation with a Q-bot unit, the system registers that person or group into a virtual queue. Guests are informed via the Q-bot’s display, and with a beep and vibration, that their ride is ready, while the device can also inform users of a ride’s breakdown and allow rescheduling of reservations.

The advantage of Q-bot is that it enables theme park visitors to reserve their rides without having to queue, so a visitor does not have to spend their time waiting in a line and he or she can spend time enjoying other attractions or do something else at the park, such as go to a restaurant.

Another solution offered by Lo-Q is Q-txt. This enables virtual queuing in the same way as Q-bot, although it uses the visitor’s mobile phone instead of the Q-bot handheld device. Users can book their place in line by sending a simple text and the Q-txt computer then allocates a place in line for the user.

In the year to 31 October 2010, contract extensions with five parks for Q-bot and Q-txt helped to increase Lo-Q’s revenues by 15.9 percent to £20.3 million, while pre-tax profits increased 18.4 percent to £2.3 million. But the company was not entirely happy with its performance during the year, citing a lack of success in selling its queuing systems to new parks (only two small parks were added as new customers in 2010).

Having had a few months to settle in, Burnet has identified four action points that are key to his strategy to transform the company from being an adequate performer to a much more exciting proposition.

Firstly, the new CEO has focused on boosting sales of the flagship Q-bot offering. “Q-bot has proved a fantastic service business, but we hadn’t sold a significant deal for two-and-a-half years before I arrived,” says Burnet. “But in recent months we’ve sold three Q-bot deals and we have a number of new ones in the pipeline. These underpin next year’s revenue very satisfactorily.”

Next, Lo-Q has launched a new system called Q-credits. This is a wristband device targeted, initially, at water parks. A key feature of the wristband is that it allows the water park visitor to build up credits as soon as he or she enters the park: time spent away from rides (at one of the park’s restaurants, say) is clocked up as credits. These credits can then be used to purchase a particular ride, with the most popular rides requiring more credits.

The concept is based on the fact that “when you’re queuing you’re trading time for an experience”, says Burnet, but the Q-credits wristband also allows park visitors to top-up their credits with cash.

The system is also flexible enough to allow water parks to dynamically price their rides in order to best match the theme park resources available with visitor numbers.  “Everything talks to each other and knows where everyone is,” says Burnet.

Launched last autumn, the plan is to develop a sales plan to sell the Q-credits system to the water park market globally for the 2012 season once trials are completed. “Last summer we trialled it technically and we have two bigger trials in June at parks in Atlanta and Florida,” says Burnet.

Burnet’s third plank to his strategy is to focus on industries away from theme parks that might be able to exploit Lo-Q’s virtual queuing technologies. “There will always be people who are prepared to pay not to queue,” he says, pointing out that there could be opportunities in the travel and retail sectors, among others.

Finally, Burnet is also on the lookout for M&A opportunities, where he can add businesses that complement what Lo-Q is doing in the theme park space. “I’m looking for intellectual property-led, technically-led businesses that will support and defend what we are doing,” he says.

As for the immediate future, house broker Canaccord Genuity expects Lo-Q’s revenue to increase by some 16 percent to £23.6 million this year with adjusted pre-tax profit coming in at £2.5 million (which should translate to earnings per share of 10.9 pence. In 2012, the broker estimates revenue of £26 million and pre-tax profit of £3.2 million (EPS of 13.5 pence).

Canaccord has also set a price target of 182 pence for Lo-Q’s shares.

Meanwhile, Lo-Q has recently announced another contract extension for its Q-bot system with Dollywood, Tennessee’s largest tourist attraction (which had 2.5 million visitors in 2010).  Dollywood has used Lo-Q’s virtual queuing technology since Septamber 2006 and the new deal sees this contract extended for a further three years.

Lo-Q continues to grow revenues and profits. Now that Burnet has had time to assess the potential of the firm, investors will be focusing on how his plans work out. But news of significant new theme park deals should help to drive the share price in the near term.