Stock Spotlight: Bapcor Limited (ASX:BAP)

This week's Stock Spotlight is ASX-listed Bapcor Limited.

About Bapcor Limited.

Bapcor Limited engages in the sale and distribution of vehicle parts, accessories, automotive equipment, and services and solutions in Australia, New Zealand, and Thailand. The company operates through four segments: Bapcor Trade, Bapcor Specialist Wholesale, Bapcor Retail, and Bapcor NZ. The Bapcor Trade segment offers automotive aftermarket parts and consumables to trade workshops for the service and repair of passenger and commercial vehicles; automotive workshop equipment, such as vehicle hoists and scanning equipment, including the servicing of the equipment; and automotive accessories and maintenance products to do-it-yourself vehicle owners. The Bapcor Specialist Wholesale segment engages in the wholesale distribution and network channel areas of the organisation, including JAS Oceania, Baxters, AAD, Bearing Wholesalers, MTQ Engine Systems, Roadsafe, Premier Auto Trade, Federal Batteries, Diesel Distributors, AADi, Toperformance, Truckline, and WANO. The Bapcor Retail segment operates retail stores comprising under Autobarn, Autopro, and Opposite Lock brand name, as well as offers workshop services under Midas and ABS brand name. The Bapcor NZ segment is involved in the wholesale of batteries, steering and suspension products, auto electrical components, precision equipment for automotive workshop equipment. This segment also supplies automotive parts and accessories to workshops, trucks, and trailer parts through the Truck and Trailer Parts brand. The company was formerly known as Burson Group Limited and changed its name to Bapcor Limited in July 2016. Bapcor Limited was founded in 1971 and is based in Melbourne, Australia.

Source: Yahoo Finance

Key Stats

Source: Yahoo Finance, ASX. Data as of 01/10/24.

Growth Potential

• Upside to our current valuation.
• Fundamentals for the vehicle aftermarket continue to remain solid over the medium to long term.
• The new CEO can bring a fresh perspective on the future strategy.
• BAP could deliver strong earnings growth given the operating leverage in the business model.
• Opportunity to grow gross profit margins from better buying terms with tier one and two suppliers.
• Significant distribution network across Australia to leverage from.
• Ongoing bolt on acquisitions and associated synergies.
• Growing BAP’s own brand strategy, which should be positive for margins.
• International markets represent long-term opportunity.
• M&A – BAP has already received a takeover offer at $5.40 per share by Private Equity which was rejected by the Board.
  

Key Risks

• Rising competitive pressures.
• Value destructive acquisition.
• Rising cost pressures eroding margins (e.g. more brand or marketing investment required due to competitive pressures).
• New CEO will need to deliver before the market will ascribe higher multiples or re-rating the share price.
• Integration (and therefore synergies) of recent acquisitions underperform market expectations.
• Execution risk.