What is the stock?

Bapcor Limited (BAP) is an Australian trade company focusing on the distribution of automotive aftermarket parts. BAP supplies replacement parts and consumables used in the service, maintenance and repair of vehicles. The company does this through both wholesale and retail channels.

How long have you held the stock?

Most clients have held the stock for 1-2 years.

What do you like about it?

Over the last two years, the business has delivered impressive annual results. These have highlighted strong margin growth, same store sales and cash generation, once again confirming the business’s resilience and competitive advantage. The company has exhibited strong organic growth, and this is expected to continue in the low double digits for coming years. With the recent market pullback and P/E re-rating, BAP currently sits on a multiple of 22, which seems attractive on a historical basis.

How is it better than its competitors?

The company has shown a strong track record with its growth through acquisition strategy. Moving forward, the business should be able to benefit from its economies of scale in both its wholesale and retail operations. Although many areas within the retail sector have been weak, BAP has been very resilient to competitive pressures. With 80% of revenue coming through the wholesale operations, the company has been able retain and capture substantial market share.

What do you like about its management?

There has been a good continuity of management. Since listing in 2014, the team has shown a great track record of both organic growth through same store sales, and successful acquisitions, most recently with their Hellaby’s acquisition.

What is your target price?

Our 12-month price target is $8.

At what point would you sell it?

We would reduce the position if the share price was to hit our valuation. We would consider selling if debt levels became too elevated, if there was a slowing in same store sales growth, or the company started to experience margin compression.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

Despite the recent sell off, the stock is still up approximately 20% over the last 12 months. It has added 1-2% to portfolio performance

Where do you see the value?

Long term, this business presents as an attractive growth opportunity. BAP has a defensive earnings profile, while management has shown to be adept at allocating shareholder capital towards quality acquisitions, that have gone on to deliver substantial synergies. Although debt levels remain relatively high after these recent acquisitions, impressive free cash flow generation ensures it can comfortably service this moving forward. The recent moves into the New Zealand markets should provide opportunities to help drive revenue and margin growth for the business.

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