3 reasons why the Bapcor (ASX:BAP) share price could be a clever buy

Bapcor could be an interesting business to think about.

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The Bapcor Ltd (ASX: BAP) share price is certainly one to think about for the long-term.

Bapcor has seen a lot of volatility over the last several years, but it has continued to grow.

The 2020 calendar year was a year like no other for the auto parts business. COVID-19 had a huge impact on demand, both negatively at the start and positively as stimulus kicked in and Australia got on top of the outbreak.

But that may not be the end of the growth story for the Bapcor share price or its profit. Here are a few reasons to consider Bapcor:

Asia opportunity

The business calls itself Australasia’s leading auto parts business. The ASX share is now expanding into Asia in a major way.

It’s taking Burson, the business that supplies mechanics with parts, into Thailand (and perhaps beyond, eventually). At the last update, there were six Burson locations in the Asian country generating a total of $4 million revenue. In Australia it has around 200 trade locations.

Bapcor wants to grow the number of Bursons to more than 60 over the next five years. This is estimated to be a turnover target of around $100 million.

But the company also has a 25% stake of Tye Soon which it recently acquired. That’s a business which has operations in a number of Asia Pacific countries such as Singapore, Malaysia, Australia, South Korea, Thailand and so on.

Tye Soon currently has turnover of around $200 million and management would like to see it expand turnover to around $400 million over the next five years.

Asia is a huge market for Bapcor to expand into beyond the small(ish) population centres of Australia and New Zealand.

Asian growth could be a big driver of the Bapcor share price in the years to come.

Expanding networks

Bapcor isn’t finished with growth in Australia and New Zealand though. When you look at the 5-year targets, it’s expecting to increase the size of its networks and revenue across all of its other segments.

It wants to grow its Australian trade store network from 200 to 260, adding 10 to 12 new stores each year. Bapcor wants to increase the New Zealand trade store numbers from 73 to over 90 too.

With its specialist wholesale division, it wants to grow total turnover from $515 million to $650 million.

With its commercial vehicle businesses (light and heavy), it wants to increase its combined store network from 49 to around 90. That could translate to growing revenue from $180 million to $340 million.

Bapcor’s goal for Autobarn is to grow the store number from 133 to 200.

The company has a very large goal for its Australian service division. It currently has 105 locations and wants to increase that to 500 outlets in Australia.

Strong demand leading to operating leverage

All of the above goals and targets are focused on growing the top line revenue.

But with scale can come stronger operating leverage, for good companies.

Bapcor is working on a number of areas to increase its margin including an efficient and optimised supply chain (with advanced distribution centres), selling a higher proportion of own brand products (with higher margins), improving its online offering, and the improved use of technology.

The Bapcor share price can benefit from the rising profit margins.

In the FY21 half-year result, whilst revenue grew by 25.8%, pro forma net profit increased by 54% to $70.2 million. The dividend continues to grow, funded by the growing profit.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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