Bapcor: A well-oiled aftermarket

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Senior Analyst
Date posted:
17 February 2021, 9:30 AM
Sectors Covered:
Consumer Discretionary, Industrials & Developers

  • Bapcor's (ASX:BAP) 1H21 result (NPAT +54%) was slightly above December guidance and Morgans estimates.
  • Strong sales trends continued into January, however recent Melbourne lockdowns have seen this momentum slow.
  • BAP is comfortable with FY21 consensus pro-forma NPAT of A$122m (with the usual economic/COVID caveats). We now forecast A$128m (+44%; 2H21 +32%).
  • The dynamics buoying aftermarket demand look set to continue (albeit perhaps at a lower cadence of growth vs 1H21). We are mindful that the EV conversation will continue to get louder which has implications for the aftermarket channel in time.
  • Higher capex assumptions see our PT fall modestly (login to view). With the stock trading within 10% of this, we shift our rating to Hold.

1H21 – a strong period of growth

BAP’s 1H21 result was slightly above its December guidance/MorgsE with 26% revenue growth converting to 44% EBITDA growth. Strong LFL sales growth trends continued across the 1H with Trade +11%; NZ flat; Specialist Wholesale +17% (organic); and Retail +37%.

This led to strong margin expansion across the board. BAP exited 1H21 in a A$120m net debt position (a comfortable 0.6x EBITDA), with cash conversion strong at 98% (adjusted for additional stock in transit at period-end).

Sales momentum continues into Jan, lockdowns take edge off Feb

BAP noted that recent sales trends continued throughout January, however recent lockdowns (Melbourne) have impacted sales in February (below the recent trajectory). BAP referenced the current consensus pro-forma NPAT forecast by saying this appears “reasonable” with the caveat that economic uncertainties/further lockdowns could impact future earnings.

Management also commented that they expect aftermarket fundamentals to remain strong due to:

  1. Increased second-hand car sales
  2. Shift away from public transport
  3. Domestic holidaying/higher car usage
  4. More cars on the road

Forecasting 31% 2H growth (off a low base)

We lift our EPS forecasts by 1-2.5%. We now forecast FY21 NPAT of A$128.2m (preAASB16) which requires A$58m in the 2H (+32% yoy).

2H20 was a weak period for the group (NPAT -15% due to COVID lockdowns). May/June bounced back strongly (Trade SSS +10%, Retail +45%), but the group was materially impacted in March and to a greater extent April (Trade SSS -10%; Retail -3%). Our A$58m forecast compares to A$51m achieved in 2H19.

Given acquisitions have been made since this time, our forecast should still prove to be conservative. We forecast a broadly flat year of growth in FY22.

Hold rating; Revised PT

Higher capex assumptions offset our minor EPS upgrades which sees our DCF/PE valuation slightly lower (login to view). With <10% TSR vs our new PT, we lower our rating to Hold.

We think the benefits of increased car usage and elevated used car sales (increasing age of the Australian car parc) will provide lingering demand tailwinds for auto aftermarket activity over periods to come. BAP offers investors an attractive mix of growth and defensiveness, in our view.

Key risks: COVID-19 interruptions; competition; consumer conditions; acquisition integration; extraction of optimisation/warehouse benefits; failure of Asian trial; and acquisition underperformance.

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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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