Bapcor Ltd drives dividends higher: Is it a buy?


Automotive parts supplier Bapcor Ltd (ASX: BAP) (formerly Burson Group) doesn’t have an exciting business, but it sure has a profitable one. When revenues and profits are rising and margins are widening, the stage is set for impressive returns to shareholders and so it has been so far.

Here’s what you need to know about today’s results:

  • Revenues rose 83% to $686 million
  • Statutory Net Profit After Tax (NPAT) rose 123% to $43.6 million
  • Underlying* Net Profit After Tax rose 89% to $43.6 million
  • Earnings per share rose 31% to 17.8 cents per share
  • Dividends rose 26% to 11 cents per share for the full year
  • Continued acquisitions plus ‘greenfield’ new store openings
  • Margins widened due to price increases, although cost of doing business also rose due to new store openings
  • Outlook for strong profit growth of between 25%-30% in 2017 due to cost savings, new stores, and a full year of trading from recent acquisitions

*Bapcor calls this ‘Pro-Forma NPAT’ and it excludes transaction costs associated with an acquisition that were incurred in the previous year – this year’s result is unchanged, only the % increase on last year’s is affected.

So What?

A strong year for Bapcor which owed much of its improved performance to acquisitions, especially that of ANA which was formerly Metcash Limited‘s (ASX:MTS) automotive division. Even so, existing business performance was also strong with Trade and Retail segments posting a 4.6% and 5.2% increase in same-store sales respectively.

Some areas face their challenges and Bapcor is reviewing its car servicing business (part of the Retail segment) to determine the future of this business. The Specialist Wholesale division also struggled to fully pass on costs (the result of a weaker Australian dollar) to the market, which resulted in lower margins for this business.

Now What?

Going forward Bapcor has announced it intends to continue participating in acquisitions as viable opportunities crop up. Investors should also expect continued developments in Bapcor’s strategy as it further integrates recent acquisitions and acquires more company-owned stores.

Management reiterated the defensiveness of the Bapcor business with an increasing number of vehicles per person as well as rising average vehicle age (4 years or more) contributing to overall demand for parts and maintenance services. Additionally, the number of kilometres travelled by passenger and light commercial are not significantly impacted by economic conditions. Bapcor also pointed out that new vehicle sales do not directly impact demand for its services as its parts are predominantly used on vehicles aged 4 years or older.

With such a defensive business and the forecast for further profit growth it’s no surprise to see that Bapcor shares are up 5% today.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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