Automotive parts and services provider Bapcor Ltd (ASX: BAP) held its Annual General Meeting at the start of November, when management provided a business update and further information on the company's 5-year strategy.
Earnings guidance of 30% NPAT growth was stated for FY2018, signifying continued strong performance for a company whose share price has almost tripled since listing in 2014 and currently trades on a trailing P/E of 29x.
Despite weak retail conditions in Australia, Bapcor's retail and services revenue increased by 28% in FY2017 and overall sales are up 8% this financial year.
Bapcor's retail and services segment generates around 20% of total group revenue, suggesting any negative business impact caused by the arrival of Amazon will be relatively limited.
Eighty per cent of Bapcor group revenue is derived from its trade and wholesale segments, which require high product knowledge and customer service levels as well as strong business relationships.
As such, management expects any Amazon effect will be insignificant on this area of the market. Furthermore, Bapcor already has online sales capabilities and has the option to join Amazon marketplace if the business case is favourable.
Trade and wholesale revenue experienced strong growth in FY2017 and same store sales are on track to increase again in FY2018.
Bapcor has plans to expand across all its business segments in both Australia and especially New Zealand, where it recently acquired Hellaby Holdings and its significant automotive parts operations. Management has stated the Hellaby acquisition has already exceeded original expectations and is currently undergoing an optimisation program to deliver cost synergies and divest non-core assets following the purchase.
In addition to Amazon's imminent arrival, Bapcor has identified electric vehicles as a potential industry disruptor. However, market saturation of this vehicle type is many years off and allows Bapcor time to prepare their operations to adjust.
Additionally, these vehicles will still require servicing and spare parts and therefore present a business opportunity as much as a possible threat.
Foolish takeaway
Markets have a tendency to overreact to bad news and I believe some ASX-listed retailers have been oversold in anticipation of Amazon's arrival. Bapcor appears to have a business model that will be largely impervious to the Amazon effect and I think the company is reasonably priced given the strong outlook for growth.
