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Bapcor Ltd (ASX:BAP) share price rises on acquisition news

The Bapcor Ltd (ASX: BAP) share price is up 2% after the auto parts business announced an acquisition to the market this morning.

It is acquiring five companies that specialise in the sale of Japanese commercial truck spare parts. Those five are: Don Kyatt Spare Parts, He Knows Truck Parts, H.I.M Spares and Japanese Commercial Spares which operate businesses in 10 locations in Queensland, New South Wales, Victoria and South Australia. They operate as a co-ordinated business.

The acquisition will be funded through existing debt facilities and the issuance of new shares, it’s expected to complete in early December 2018. Bapcor said that $15 million of the purchase cost is deferred until a year later and is subject to certain conditions.

Bapcor said that further details will be provided following completion.

Why did Bapcor acquire this group?

Bapcor said the acquisition is consistent with its stated direction. This commercial truck group fits into the specialist business section, providing further opportunities for consolidation and organic expansion.

The earnings from the acquisition will more than offset the full year earnings from the divested TRS business in FY19.

Bapcor CEO Darryl Abotomey said “We are excited to welcome these commercial truck teams to Bapcor. The acquisition of this commercial truck group further strengthens Bapcor’s position as a specialist provider of automotive aftermarket parts, accessories and services.

“The growing prevalence of smaller commercial trucks in the Australian market will provide the group with further expansion opportunities.”

It seems we’ll learn more about the acquisition in a week or two, where we will get a better feel of the deal.

Is Bapcor a buy?

Before taking into account this acquisition’s extra earnings, Bapcor is trading at, at worst, 18x FY19’s estimated earnings using management’s estimate of profit growth of 9% to 14% for FY19.

I believe this is a very attractive price for a business that continues to grow strongly organically, with the occasional bolt-on acquisition. Its current grossed-up dividend yield of 3.6% is handy too.

A bonus with Bapcor is that it’s starting to expand into Asia, which could be a big opportunity. Either way, it’s doing well regardless of what happens with Asian expansion.

However, investors must be wary of technological change in the auto industry with the long-term trend pointing towards electric (and automated) vehicles.

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Motley Fool contributor Tristan Harrison owns shares of Bapcor. The Motley Fool Australia owns shares of and has recommended 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 Scott Phillips.

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