Bapcor (BAP), Australia’s largest vehicle parts, accessories, and equipment provider, reported their 1H2025 results that highlighted the business had turned around. HNW Equity Portfolio has a 2.5% weight to BAP.

Key Points:

  • Profits Up: Net profit was up +6% to $46 million. Trade, New Zealand, and Specialist Wholesale saw good profit growth throughout the half. However, this was offset by weaker retail spending on high-margin discretionary items ( such as soundbars, subwoofers, and bull bars).
  • Brighter Times Ahead: Since starting six months ago, newish CEO Angus McKay has implemented initiatives, including consolidating brands and warehouses to reduce costs and invest in better technology to improve supply chain fulfilment. This will see Bapcor capitalising on $20-30 million of annual savings and reducing the inventory levels going forward.
  • Balance Sheet: The balance sheet is looking better, with net debt decreasing by 10% to $305 million and a leverage ratio of 1.65x with no debt maturities until 2026.
  • Dividends: Bapcor announced a dividend of 8 cents per share, representing a payout ratio of 60%, at the higher end of their dividend policy.
  • Why is the stock up? The operational improvements evident in the cash flow statement, which saw cash conversion improve from 62% to 108%. Management attributed this to improved receivables collection and getting better payment terms from suppliers after consolidating buyers.
  • Guidance: Bapcor management didn’t provide specific guidance but did provide a trading update showing that sales across the business were up 1% for the first five weeks of the second half and that they expect cost savings of $20-30 million in FY25.

Portfolio Strategy: Bapcor provides the Portfolio exposure to automotive parts aftermarkets across Australia and New Zealand through motor vehicles (Burson), Trucks (Truckline), Agriculture (Bearing Wholesalers), and servicing (Midas). Bapcor benefits from the constantly aging car fleets of Australia and New Zealand that require more frequent servicing, with the average vehicle age increasing from 9.5 years before the pandemic to over 11 years now. Over the medium term, Bapcor will benefit from the transition to EVs, with many components of EVs needing more regular servicing and replacing. Bapcor trades on 14x forward earnings with a dividend yield of 3.5%.

Late last year Bain put through a cash bid for BAP at $5.40; based on the above they will need to sweeten this bid to get over the line.

BAP finished up +13.4% to $5.09