3 reasons the Bapcor share price could be an ASX 200 winner

The automotive parts and services business could be an interesting ASX 200 opportunity.

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Key points

  • Bapcor is an auto parts ASX 200 share
  • It operates various businesses including Burson, Autobarn, and ABS
  • Bapcor wants to grow profit through opening more locations, becoming more efficient, and selling more own-brand products

The Bapcor Ltd (ASX: BAP) share price could be a winning idea in the S&P/ASX 200 Index (ASX: XJO).

For readers who don’t know what Bapcor is, let’s look at some of its businesses.

Bapcor’s operations

This business describes itself as Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service, and solutions.

It has businesses providing auto parts and services in several areas in the vehicle sector. ‘Trade’ businesses include Burson Auto Parts, Precision Automotive Equipment, and BNT (NZ).

Next, it has a specialist wholesale segment covering a wide array of businesses including AAD, Bearing Wholesalers, Baxters, Diesel Distributors, and Federal Batteries. The ASX 200 share also has commercial truck parts – Truckline for heavy vehicles and WANO for light vehicles.

Additionally, it has a retail segment. This includes Autobarn and Autopro. Service businesses include Midas, ABS, Shock Shop, and Battery Town.

Here are three reasons why the Bapcor share price could be attractive:

Network growth

Bapcor has a footprint of around 1,100 locations across Australia and New Zealand in trade, specialist wholesale, and retail.

The ASX 200 share has a five-year target to grow its footprint to over 1,500. That implies an increase in the scale of the business of well over 30%.

When combined with potential long-term same-store sales growth, that could allow revenue to keep growing over the coming years. This could be supportive of the Bapcor share price.

It’s not just Australia and New Zealand that the business has its eyes on.

Bapcor is also growing in Asia. It has eight operating Burson locations in the Bangkok district. It opened its first store outside of Bangkok at Sirachi in October. The company says this new store is “performing well”.

Bapcor Thailand’s FY22 second-quarter sales were 85% higher than the first quarter.

The ASX 200 share also has a 25% stake in Tye Soon, with 60 locations in Asia, predominately in South Korea and Malaysia. It also has wholesale distribution businesses in Hong Kong, Singapore, and Indonesia.

Higher profit margins

Bapcor is looking to become more efficient and profitable. Increased scale alone can help with operating leverage.

But its new consolidated distribution centre in Tullamarine could lift the company’s productivity significantly. It’s targeting operating expenditure savings of around $10 million and an inventory improvement of $8 million. Most of these savings come from consolidating its three largest warehouses into the new distribution centre.

The company is also looking to supplement market-leading brands with Bapcor’s own-brand products.

Over the next five years, Bapcor wants to grow its market penetration of own-brand products from 29.8% now to 40% in five years and, in New Zealand, from 30.3% to 45%. It’s also aiming for greater own-brand penetration in the specialist wholesale division from 54.6% to 65% and in retail from 33.9% to 45%. Own-brand sales can come with higher margins.

Valuation and dividends

Investors may also consider the Bapcor share price and its dividend as a reason to like the business.

According to Commsec, Bapcor shares are valued at 16x FY22’s estimated earnings with a projected FY22 grossed-up dividend yield of 4.8%.

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 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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