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:
- further benefits from the optimisation program;
- increased contribution from greenfields (maturation of new stores); and
- 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.
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.
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