Bapcor

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Senior Analyst
Date posted:
21 February 2018, 12:48 PM
Sectors Covered:
Consumer Discretionary, Industrials & Developers

1H18 result in-line: NPAT +45%; EPS +37%

Bapcor's (BAP) 1H18 result was in line with our forecasts, with the 1H result representing c47% of the groups FY18 NPAT guidance. Highlights of the result include:

  • revenue +41.6%
  • pro-forma EBITDA +42.8%; and
  • pro-forma NPAT +45.2%

The result was buoyed by recent acquisitions (notably Hellaby). Same store sales (SSS) growth was strong in all divisions, comprising:

  • Trade +3.4%:
  • Specialist Wholesale +5%:
  • Trade NZ +8.5%; and 
  • Retail +5% (company-owned stores; franchise stores +1%).

As expected, Retail margins (-60bp) were impacted by an increased proportion of company-owned stores (franchise buybacks) and greenfields (in ramp-up phase), while Trade margins improved 30bp. The Hellaby (HBY) acquisition has exceeded initial targets with both strong top-line and margin performance.

Gross op. cash flow conversion of EBITDA was strong at 98%.

FY18 guidance reiterated...

NPAT guidance of 30% growth (equating to A$85.5m) was reiterated. BAP flagged on the call that it expects the 2H to benefit from:

  1. further benefits from the optimisation program;
  2. increased contribution from greenfields (maturation of new stores); and
  3. broad based expansion (store rollout).

Additionally, price increases (Australia and NZ Trade) executed in January should assist the 2H18 SSS growth and margin performance. Divestment of the remaining non-core asset, TBS Group, is ongoing with management expecting it to finalise before FY18-end. The 2H will also see BAP commence its Asian trial (one store by May 2018; five to be opened in CY18).

...requires c10% growth from the base business

If we take the FY17 EBITDA of A$117.4m and add back A$3m/A$3.5m of ANA/HBY synergies and account for an additional six-month contribution from HBY (cA$15m); underlying EBITDA would be A$138.9m. This requires c10% growth from the base business to achieve our A$150.6m FY18 EBITDA forecast which is (in our view) achievable.

Investment view

Bapcor trades on a sub market FY19F PE (16x), with a multi-year, double-digit EPS growth profile on offer and has limited Amazon exposure/defensive characteristics. Key risks include increased competition, acquisition integration, underperformance of HBY and failure to divest the TBS Group.

Our forecasts are broadly unchanged, and we maintain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for Bapcor (BAP). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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