Why the Bapcor (ASX:BAP) share price could be a top buy

Bapcor could be a leading ASX share to think about right now.

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The Bapcor Ltd (ASX: BAP) share price could make the auto parts business a leading ASX share to consider.

Bapcor is one of the biggest suppliers of auto parts in south east Asia. In Australia and New Zealand it has a leading presence with a number of market-leading brands across trade, retail, trucks, wholesalers and service. Readers may know some of those brands including Burson, Autobarn, Autopro, Truckline, Midas, Shock Shop and Battery Town.

The business also has an increasing presence in Asia. Bapcor has opened a few Bursons in Thailand, but it has stopped opening any more for now until COVID-19 lockdowns and impacts end.

But it also has a 25% stake in Tye Soon, an auto parts distributor that operates in Asia in places like Malaysia, South Korea, Australia, Singapore, Thailand and so on. At the time of the acquisition, Tye Soon had annual revenue of around SG$200 million. This investment cost SG$12.5 million.

Credit Suisse rates the Bapcor share price as a buy

The broker currently has a buy rating on Bapcor with a price target of $9.20. That suggests the broker believes Bapcor shares could rise over 20% during the next year.

Credit Suisse thought the FY21 result was solid, though the outlook wasn’t impressive.

In FY22, the broker thinks that Bapcor is going to pay a fully franked dividend of 23 cents per share and generate earnings per share (EPS) of 38 cents. That means, on the broker’s projections, Bapcor has a forward grossed-up dividend yield of 4.4% and it’s valued at under 20x FY22’s estimated earnings.

What was in the FY21 result?

Bapcor reported that its revenue from operations increased by 20.4% to $1.76 billion. Operating leverage led to pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) rising 28.8% to $279.5 million and pro forma net profit after tax increasing 46.5% to $130.1 million.

FY21 statutory EPS increased 29.8% to 35 cents.

The profit growth allowed the board to increase the full year dividend by 14.3% to 20 cents per share.

The two biggest generators of revenue and profit for Bapcor in FY21 were the trade and specialist wholesale divisions. Trade grew revenue 15.5% to $$649 million and specialist wholesale grew revenue by 26.8% to $660 million. Trade EBITDA increased 19% to $115 million and specialist wholesale EBITDA rose 42.2% to $90 million.

It was the specialist wholesale division that saw a particularly large increase in the EBITDA margin, rising from 12.1% to 13.6%.

The trade division saw Burson open its 200th store, an increase of 14 over the year. Same store sales continue to rise, with growth of 14.3%. Own brand revenue made up 29.1% of the total. It also launched a new business to business platform.

FY22 outlook

In coming to its buy rating on the Bapcor share price, Credit Suisse noted that the auto parts business aims to deliver pro forma earnings of at least the level of FY21, but this is dependent on the extent of lockdowns and other government restrictions. The Sydney and Melbourne lockdowns continue, though vaccination targets continue to get closer.

Should you invest $1,000 in Bapcor right now?

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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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