This report is an updated version of the report published on 30th March 2022 at 04:00 pm (GMT +10)

Bapcor Limited

BAP Details

Bapcor Limited (ASX: BAP) is among the Asia Pacific’s top player of providing vehicle parts, as well as accessories, equipment, service and solutions. 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 in line with achieving its full year guidance provided at the AGM in October 2021.
• 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

Delivering on Strategy

BAP 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 as well as 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 its deployment towards technology and digital transformation.

Over the next five years, the company is eyeing to grow its footprint from c.1,100 locations to over 1,500 locations and also boost market penetration of its own brand products.

Growing Through Inorganic Route

Since 31 December 2021, BAP undertook two acquisitions, one in Bapcor Trade and one in Specialist Wholesale. These acquisitions combined will contribute annualised revenue close to $50 million and were acquired at attractive mid-single digit EBITDA multiple pricing (pre-synergies). The recent debt refinancing activity offers the company with substantial financial flexibility to further embark on acquisition opportunities and invest in high returning projects.

Strong Balance Sheet Position

BAP holds a strong balance sheet. The leverage ratio stood at 1.0x on a twelve-month pro forma EBITDA basis as on 31 December 2021 with interest cover staying robust. Further, it holds an increased level of cash on hand relative to the prior period with cash of $79.8 million as on 31 December 2021 against $39.6 million as on 30 June 2021.

Key Metrics

The company’s EBITDA margin and ROE grew sharply. 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 ~42.76% 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 will 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. The Australian, NZ and Thai automotive aftermarket parts and accessories distribution industries are competitive. Increased competition could adversely impact the financial performance and industry position.

Outlook

The company made strides on implementing its strategic targets in H1FY22, with an emphasis on network growth, as well as attaining operational efficiencies, expanding its own brand product range, and growing in Asia. The business is well set for continued performance as business conditions improve and inventory currently is better positioned for H2FY22 despite ongoing global supply challenges. Besides, the company is going as per plan to meet annual store targets for FY22.

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 and targets to achieve sustained growth and success. 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 a 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 current market price of A$6.480 per share (Time: 1:56 PM GMT +10), Sydney, Australia) as of 30^th March 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

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