BAP Details

Bapcor Limited (ASX: BAP) is engaged in the core business of automotive aftermarket. Its businesses cover the entire aftermarket supply chain spanning across Trade, Commercial Vehicles, Specialist Wholesale & Retail. The company’s Trade businesses comprise Burson Auto Parts, Precision Automotive Equipment and BNT (NZ).

Solid Financial Performance in H1FY22 (For the Period Ended 31 December 2021)

• The company has delivered continued revenue growth in H1FY22 despite prevailing challenges pertaining to COVID-19, up 1.9% YoY to $900.1 million.
• BAP has recorded a Pro forma NPAT of $61 million.
• The board has declared a fully franked interim dividend of 10.0 cents per share, an increase of 11.1% over the H1FY21 dividend.
• The company has expanded its geographic footprint during the period by way of opening eight retail stores, four Burson stores and six Specialist Wholesale sites.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Leading Player of Automotive Parts

BAP is Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service, and solutions. It caters to the trade, wholesale, and retail customers across c.1,100 locations in Australia, New Zealand, and Thailand. BAP provides the comprehensive range of vehicle parts needed to safely keep cars as well as trucks on Asia Pacific roads with ~90% of revenue attributable to these types of non-discretionary items.

Focus on Driving Efficiencies

There exist significant opportunities to further leverage efficiencies.

The company is planning to increase profitability via optimisation of the pricing, procurement as well as property management. Further, it focuses on capital efficiency through enhanced labour and inventory utilization and execution of sales and operations planning. It also emphasizes on simplification of business by investing in technology and IT systems and increased usage of digital across business.

Delivering on Strategy

The company has made considerable progress on delivery of its existing 5-year strategic targets to drive long-term sustainable growth, including continued expansion of the network, new supply chain and logistics capabilities as well as deployment in the development and well-being of the team.

In major strides towards this direction, during H1FY22, BAP has expanded its presence to over 1,100 locations across Australia, New Zealand and Thailand as well as developed its group logistics capabilities and sustained investment in technology and digital transformation. Moreover, over the next five years, the company is eyeing to grow its footprint to over 1,500 locations and also boost market penetration of its own brand products.

Key Update

Recently, the company appointed Brad Soller as Interim Chief Financial Officer (Interim CFO).

Key Metrics

The company’s EBITDA margin and ROE grew in FY 2021 on the YoY basis. However, the company’s current ratio reduced to 1.88x in FY21 from 2.18x in FY17. Notably, Debt to Equity ratio improved significantly to 0.41x in FY21 compared to 0.74x in FY17, depicting reasonable leverage position of the company.

Exhibit 2: Key Financial Metrics

Data Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 44.02% of the total shareholding while the top four constitute the maximum holding.

Exhibit 3: Top 10 Shareholders

Data Source: Analysis by Kalkine Group

Key Risks

BAP is exposed to the risk of Covid-19 pandemic, which results in restrictions on doing business and could have an impact on the company. It is also susceptible to the risk of increased bargaining power of customers as it derives most of its sales from repeat orders from customers. BAP operates in a highly competitive market. Increased competition could adversely impact the financial performance and industry position.

Outlook

The company’s FY22 YTD performance through to 31 March remained strong given the circumstances in the first half. Notably, the fundamental drivers of the automotive aftermarket also continue to stay robust and are anticipated to sustain going ahead.

Moreover, its resilient business model, along with its healthy balance sheet and robust cash flows have placed the company well to deliver on its strategic priorities.

In FY22, the company continues to target pro forma earnings of at least the level of FY21. Notably, it expects the performance in H2FY22 to remain stronger compared to H2FY21, subject to no further material COVID-19 impacts.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average) considering its strong result performance in H1FY22 and sustained progress on its growth strategies.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the aforementioned factors along with decent outlook and liquidity position, we give a “Buy” recommendation on the stock at the closing market price of A$6.22 per share, down by 0.638% as of 18^th May 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices