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

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

| More on:
A stopwatch ticking close to the 12 where the words on the face say 'Time to Buy' indicating its the bottom of the falling market and time to buy ASX shares

Image source: Getty Images

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?

Before you consider Bapcor, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Bapcor wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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.

More on Broker Notes

Red buy button on an apple keyboard with a finger on it.
Broker Notes

Top brokers name 3 ASX shares to buy today

Brokers are feeling bullish about these ASX shares...

Read more »

A trendy woman wearing sunglasses is making it rain, spraying cash on that bargain.
Broker Notes

Macquarie reveals 2 sectors where bargain ASX shares still exist

The broker reckons ASX shares and US equities are still expensive, even after the recent pullback.

Read more »

A man leans out of his car window with a massive smile on his face and waves.
Industrials Shares

‘Too early to brake for the next exit’: What this top broker likes about Transurban shares

Analyst sentiment appears to be bullish on Transurban.

Read more »

a young girl wearing a set of airplane wings stands on a tarmac with hands in the air and an excited look on her face as though she is about to take off.
Broker Notes

Ready for takeoff? Top broker sees smooth runway for Qantas shares in 2022

Travel stocks are back in the limelight it seems.

Read more »

A group of three builders wearing worker overalls and carrying hard hats in their hands jumps jubilantly atopa rooftop space on a commercial building with an airconditioner shaft in the background and the sun behind a light cloud behind them.
Broker Notes

Why is the James Hardie share price surging higher today

We look at what's driving the recovery in the building materials company's shares on Wednesday.

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Ask a Fund Manager

2 ASX shares I have supreme confidence in: fund manager

Ask A Fund Manager: Glenmore Asset Management's Robert Gregory names a pair of stocks that are both his biggest holdings…

Read more »

Two brokers analysing the share price with the woman pointing at the screen and man talking on a phone.
Broker Notes

How does the IAG share price stack up against analyst ratings?

Let's check in and see.

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Broker Notes

Broker names 3 reasons the South32 share price could be cheap

South32 shares could be great value according to one leading broker...

Read more »