Last edited 6 months ago
#Bull Case
stale

A business led by one of the best management teams on the ASX, Bapcor's autoparts distribution business offers defensive earnings and good growth potential.

A combination of savvy acquisitions, material efficiency gains and network roll-out have underpinned outstanding per share earnings gains in recent years, and I expect growth to remain in the double digits for many years to come.

With the business delivereing high double digit growth at the most recent half, and guiding for 30% growth in underlying NPAT for the full year, the forward PE is very undemanding. (See my forecasts page for valuation)

 
Added 4 months ago
#Broker / Analyst Views

31 May-2019:  Credit Suisse rates BAP as "Initiation of coverage with Outperform"

Credit Suisse initiates coverage on Bapcor with an Outperform rating and $6.95 target. The company has achieved private-label penetration of 24% across Australia's trade and retail markets.

 

The broker considers the successful execution of the company's strategy and the roll-out of around 50 stores implies at least 16% of embedded growth over and above FY19 estimates.

 

The broker believes the de-rating of the stock has been driven by concerns around near-term momentum. Hence, a valuation gap has emerged.

 

Target price is $6.95 Current Price is $5.96 Difference: $0.99
If BAP meets the Credit Suisse target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $6.98, suggesting upside of 17.1% (ex-dividends)

The company's fiscal year ends in June.

 

Forecast for FY19:

Credit Suisse forecasts a full year FY19 dividend of 17.17 cents and EPS of 33.36 cents.
At the last closing share price the estimated dividend yield is 2.88%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 17.87.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 33.6, implying annual growth of -0.9%.

Current consensus DPS estimate is 17.8, implying a prospective dividend yield of 3.0%.

Current consensus EPS estimate suggests the PER is 17.7.

Forecast for FY20:

Credit Suisse forecasts a full year FY20 dividend of 18.37 cents and EPS of 36.36 cents.
At the last closing share price the estimated dividend yield is 3.08%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 16.39.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 37.3, implying annual growth of 11.0%.

Current consensus DPS estimate is 19.7, implying a prospective dividend yield of 3.3%.

Current consensus EPS estimate suggests the PER is 16.0.

 
Last edited 4 months ago
#Growth Drivers

Macro level

-Growth in new registered vehicles 2013-2018: 2.3% (Australian bureau of statistics), although note a decline since 2003-2008: 3% (Australian bureau of statistics)

-Average age of cars 2015-2018 stable at: 10.5 years (Australian bureau of statistics)

-Im guessing the average age will increase with stagnation of wage growth currently putting pressure on consumers to hold off buying new cars. Aging cars will need repairs and replacement parts meaning increased demand for aftermarket parts

-Global aftermarket parts industry is projected to grow at 3% p.a out to 2030 (McKinsey & Co.)

 

 

 
Added 3 months ago
#Morningstar report

Morningstar rate Bapcor a buy with a $7 valuation.

See here

 
Last edited 7 months ago
#HY2019 Results
stale

Bapcor's first half result saw proforma revenue and per share earnings growth of 3.2% and 5.9%, respectively. Which is well down on the previous pace of growth.

The performance looks better when you exclude the now divested New Zealand TRS business from the previous period, with revenue up 5.5% and EPS up 8.5%. But it seems this has underwhelmed the market with shares down 10% (at time of writing).

CEO Darryl Abotomy also spoke of "challenging market conditions" and offered full year guidance of 9% growth in proforma net profit, which is right at the lower end of the group's previous estimate of 9-14% growth.

Despite this slowdown, the core underlying businesses are doing well, in my opinion.

Burson Trade saw a 4.8% lift in revenue with same store sales up 2.1% and with an imporved margin. Meanwhile, Specialist Wholesale grew sales and EBITDA by 7.8% and 11.4%, respectively. These two segments represent 80% of group revenue and profit.

Retail and services (Autobarn, Midas etc) saw revenue up 8.8%, and here too same store sales were higher, but EBITDA was flat due to store expansions and refurbishments, and (it seems) higher discounting. 

As always, the question is whether we are seeing the start of a structural slowdown in growth, or just the inevitable cyclicality of a retail exposed business.

To my mind, even if you assume upper single digit earnings growth the 'new normal', shares still represent reasonable value. Especially given the quality of management. 

I have however reduced my valuation to account for the slower pace of growth.

 
Last edited 4 months ago
#Growth Drivers

Business Level

-Market size of "motor vehicle parts" within which "aftermarket parts" makes up some share is estimated at $5.2bn p.a. in Australia (IBIS World)

-With new car registration increasing @ 2.3% p.a the aftermarket parts industry is by no means a growth industry meaning the market size isn't expanding fast

-Therefore Bapcor's growth will be derived from capturing market share from competitors

-AGM 2018 presentation outlined plan on how they will do this; increasing store fronts over the next 5yrs

 
Added 4 months ago
#Bull Case

Strong moat from industry size and mechanic shop supply logistics

 
Last edited 6 months ago
#Risks
stale

Electric cars

The rise of electric cars is seen as a negative by many for Burson; after all, they require less parts and tend to be longer lasting.

Nevertheless, even with a strong adoption rate, it will be many years before electric vehicles become a major part of the market.

And, of course, Burson is well placed to supply what parts are needed.

So, for me, this is not a huge risk.

 
Last edited 6 months ago
#Bull Case
stale

This straw has been flagged as stale, but nothing has changed my opinion.  The companies report was very strong in August and only solidifies the following thesis:  This is a fantastic defensive, longterm investment.  Having expanded it's footprint here and in New Zealand with good acquisitions, this well run company can only continue it's steady growth.  A company that wll allow good night sleeps.