Bapcor’s operational performance has been resilient in challenging conditions and the story remains a good one. The distraction of the CEO change is over and rumours of a takeover are being denied by the company.
BAP’s 1H22 net profit of $60.7 million was 14% below the same period last year but this was close to consensus expectations in a fairly challenging environment. Bapcor New Zealand endured 125 days of lockdowns in 1H22 compared to 90 days in all of FY21. COVID-related restrictions in Victoria and NSW also impacted on the Bapcor retail division together with some supply chain issues. At a group level, 1Q22 was easily the most impacted quarter throughout the pandemic with close to 300 trading days lost.
Comparing the current result to two years ago paints a different picture. Group EBITDA in 1H22 of $137 million has increased 28.6% over 1H20 and it’s a similar story for net profit which increased 33% on the same comparison.
The strategic execution has continued with 18 new sites opened - 4 Burson Trade, 8 retail and 4 specialist wholesale. Private label penetration has been lifting in all divisions. The new consolidated Distribution Centre in Tullamarine is up and running, already doubling the daily line item pick of the three replaced DCs combined. That augurs well for the expected $10 million targeted operating expenditure savings and $8 million inventory improvement.
Net debt as at 31 December 2021 was $203 million placing leverage at 1.0x EBITDA. BAP noted it has since signed two acquisitions with annualised revenue totaling about $50 million. No further details are available yet.
Investment view
The appointment of Noel Meehan as CEO closes out the global search following Darryl Abotomey’s botched departure. Fortunately, Meehan has a good executive team around him and his appointment allows Margie Haseltine to step back from Executive Chair to just Chair from 31 March 2022. The promised culture review is underway. The denial of the takeover rumours also took some steam out of the share price.
BAP’s outlook is guiding to FY22 earnings at least at the level of FY21, implying 2H22 should be a better half year than 2H21 assuming no further business interruptions.
The Australian car parc has a low EV penetration and an accelerating average age. BAP has a strong store rollout program, a chunky gross margin, and potential growth in private label penetration. All these factors suggest BAP should not be trading at a 15% PE ratio discount to its US peers. We maintain our Buy recommendation.
