There are a few reasons why the Bapcor Ltd (ASX: BAP) share price could be an interesting idea to some investors at the moment.
What is Bapcor?
Bapcor is a leading auto parts business across Australia and New Zealand.
It has a number of different businesses that service various parts of the auto market. The biggest division is Burson Auto Parts, which supplies parts to mechanic customers. Sometimes the parts can be supplied within two hours. Burson has over 190 stores with more than 800 delivery vehicles.
Other businesses in the trade segment include Precision Automotive Equipment and BNT.
Next is a whole range of specialist wholesale businesses that supplies the auto market with a large range of products. Bapcor says that many of these businesses are leaders in their product categories. There’s a long list of names including: AAD, Bearing Wholesalers, Baxters, MTQ, Roadsafe, JAS Oceania, HCB, Diesel Distributors, Federal Batteries, Premier Auto Trade and AADi.
Bapcor has also made acquisitions relating to truck parts, so it’s also in the light and heavy commercial track space. This division could be helpful for the Bapcor share price and profit over the coming years.
In the retail space, Bapcor owns the large Autobarn business. It also has service businesses including Midas, ABS, Shock Shop and Battery Town.
Why could the Bapcor share price be attractive?
1: Strong results
A key part of delivering strong returns for shareholders is delivering good financial results. As Benjamin Graham once said, the share market is like a weighing machine.
Bapcor has been delivering growth for many years and the FY21 half-year result was no exception.
Revenue grew by 25.8% to $883.6 million. Pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 36.5% to $145.6 million.
Bapcor revealed that the trade segment, including Burson, grew revenue by 12.3% with same store sales growth of 11%. It added another nine stores to reach 195 stores nationwide.
The specialist wholesale division saw organic revenue growth of 17% and organic EBITDA growth of 36.2%. Including Truckline and Diesel Drive, specialist wholesale revenue rose 39.5% and EBITDA grew 54.9%.
Bapcor’s retail and service division also saw a lot of growth, with revenue rising 44% and EBITDA going up 55.8%. Autobarn same store sales went up 37.1%. Bapcor has been giving trading updates over the last nine months, showing strong retail growth and this has boosted the Bapcor share price.
Pro forma earnings before interest and tax (EBIT) went up 45% to $106.8 million and pro forma net profit after tax (NPAT) grew 54% to $70.2 million. Pro forma earnings per share (EPS) grew 28.9% to 20.7 cents.
2: Growth into Asia
The populations of Australia and New Zealand are small compared to Asian countries.
Bapcor is only just getting started in Asia. At the moment it has six Burson outlets in Thailand. It has a target of more than 80 stores for Thailand, with a turnover target of $100 million. At the moment its turnover is $4 million.
Bapcor talks about “South East Asia”, not just Thailand, when it comes to growth in the region. There could be other countries to expand into down the line.
It will take time for Bapcor to grow its network and profit margins there, but over time it could become a much bigger division.
Having a strong online offering could also really help things in both Asia and domestically. Bapcor is currently working on a new distribution warehouse in Victoria.
3: Bapcor share price valuation
The Bapcor share price has fallen by 14% since 8 February 2021, which is a reasonably large drop over just one month.
Considering all of the different growth plans that the company has, a lower price could make it more attractive to investors.
At the current Bapcor share price, it’s valued at 20x FY21’s estimated earnings. It also has a current grossed-up dividend yield of 3.7%.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. 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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