Bapcor (BAP) | Perfect storm
In a nutshell: Recent results from Super Retail (ASX:SUL), Supply Network ( ASX:SNL), GUD Ltd (ASX:GUD) and US firms Genuine Parts Co. (owner of Repco) and O’Reilly Automotive all provide evidence of strong trading in the automotive category in 4Q20. These trends appear to have carried into the early part of 1Q21. Bapcor have similarly confirmed stronger-than-expected demand in May/June. We believe strong trading and a rational pricing environment should see FY20 NPAT at the upper end of guidance of $84m-$88m. We maintain our BUY call.
Offshore automotive growth rebounds: Genuine Parts Co (GPC), owner of Repco in Australia and New Zealand, reported sales volumes had returned to pre-COVID levels in recent trading. Australia and NZ sales increased 4.4% in 2Q20. Sales volumes were driven by double-digit retail sales growth and solid commercial sales growth in May and June. Positive sales growth, a rational pricing environment and cost savings contributed to a 300bps improvement in Repco’s net profit margin. Further, online sales increased over 300% from pre-COVID levels. US-based O’Reilly Automotive similarly reported strong 2Q20 sales, with like-for-like sales up 16.2%. Sales were particularly strong from the Retail (DIY) category.
Supercheap & GUD report positive trends: Domestically, Super Retail Group reported stronger-than-expected trading in May and June. Following a 26.2% decline in group like-for-like sales in April, monthly like-for-like sales increased by 26.5% in May and 27.7% in June. Supercheap Auto achieved total sales growth for the year of 7.6%, with like-for-like sales growth of 6.3% an acceleration when compared with May year-to-date sales growth of 3.3%. Also worth noting, GUD’s recent FY20 result included positive outlook commentary on recent trading. Management highlighted double-digit growth in its Automotive aftermarket sales in June and through July.
Investment view: The fundamentals supporting the automotive aftermarket industry include: 1) the addressable market continues to increase with the average age of vehicles increasing and new vehicle sales slowing; 2) low petrol prices encouraging increased vehicle use; and 3) a reluctance to travel by modes of transport other than the car for both business and holidays. Click here to read full report