3 reasons why I invested in Bapcor

There are many good reasons why I decided to invest in Bapcor Ltd (ASX: BAP), so I will write about three of them in this article.

Bapcor is Australasia’s leading auto parts business. Most people would know it for its national chains of Bursons and Autobarns. It also owns a variety of specialist businesses.

Here are three reasons why I decided to invest in Bapcor:

Defensive earnings

There are few businesses out there that earn defensive earnings. There are even fewer that could claim their earnings may grow in a downturn.

Gambling businesses and fast food businesses may be contenders, but Bapcor could be the best one. In lean times people aren’t going to buy new cars, they want their car to last longer – so they’ll replace any parts that break down instead of buying a new car.

Car parts don’t know if there’s a recession happening or not. They will break, seemingly at random.

Growing business

Across the board, Bapcor is driving its numbers higher.

In FY18 it grew its key Burson chain by 10 stores to 170, management increased the 5-year store target to 230 and Burson achieved same store sales growth of 4.4%

Last financial year Bapcor’s gross margin increased by 0.3% to 46% and its earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 0.5% to 12.1%.

Bottom line profit growth of around 30% was pleasing, but it’s the same store sales and growing profit margins that are even better signs of an increasingly scalable business. These are the types of businesses you want your portfolio to be full of.

International expansion

The most successful ASX shares over the past few years have been ones that are growing beyond the shores of Australia (and New Zealand).

Bapcor recently bought Hellaby – the New Zealand version of Bapcor. However, Bapcor now has two stores open in Asia.

The Asian region has a much larger number of cars on the road compared to Australia, so this is a big opportunity if it can create good profit growth there.

Foolish takeaway

Bapcor is expecting profit growth of at least 9% in FY19 and also just acquired a commercial truck parts group which suggests FY19 could be another impressive year.

It’s only trading at 20x FY18’s earnings, which I think is an attractive price for this growing business.

However, I can understand if the future threat of electric vehicles puts you off investing in Bapcor. If that’s the case, there might be other ASX shares that are better to invest in.

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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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