Bapcor Blows Them Away

Australia | Dec 18 2020

A spectacular trading update from Bapcor has brokers scrambling to upgrade forecasts, while suggesting the story is not a temporary one

-Strong sales growth and strong margins
-Upside drivers still in place
-Plenty of M&A opportunity

By Greg Peel

Heading into yesterdays guidance upgrade from automotive aftermarket specialist Bapcor ((BAP)), the six brokers covering the stock on the FNArena database all held Buy or equivalent ratings. They have been duly rewarded.

The auto aftermarket, which includes parts, accessories, equipment and services, has been a solid covid winner post the early lockdowns in Australia and this was not obvious to the market at first. When Bapcors suite of stores reopened, demand went haywire.

Aside from simple pent up demand from when stores were mandatorily shut, Bapcors sales have soared on covid-inspired lifestyle changes. More Australians are driving to work and avoiding public transport. Many chose to take a road trip within their state once allowed, given border closures. State borders are now reopened, but as this week has shown thats a dubious situation so it might be safer to stick to car travel rather than risk flying interstate.

In the uncertain economic outlook, Australians have preferred to buy cheaper used cars rather than new. All of the above has led to increasing demand for Bapcors businesses.

Business all but went to nought in March-April but as restrictions eased, sales bounced back hard. The initial assumption was this bonanza would not last, merely reflecting aforementioned pent up demand. But yesterday management revealed retail sales are tracking 40% growth year on year in FY21 to date.

To that end, management has issued first half guidance of 25% sales growth and 50% profit. No full year guidance at this stage given ongoing uncertainty, rather this will be provided at the end of the first half. The gap to profit from sales indicates remarkable operating leverage and better than expected margins.

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