Bapcor Limited

BAP Details

Recent Updates: Bapcor Limited (ASX: BAP) operates in the automotive aftermarket business selling vehicle parts, automotive equipment, accessories, services, and solutions. BAP runs through segments namely retail, specialist wholesale, trade, and service.

• Director, Jennifer Mitchell Macdonald acquired ~4,545 shares on 16 February 2022 and ~455 shares on 15 February 2022, at $6.99 per share. She now holds ~35,013 fully paid ordinary shares in BAP versus ~30,013 shares held previously.
• On 10February 2022, Challenger Limited reduced its shareholding from ~7.63% to ~5.99% in the company.

Overview of 1HFY22 (ended 31 December 2021) Results:

• The company posted a revenue increase of ~1.9% YoY from ~$883.6 million in 1HFY21 to ~$900.1 million in 1HFY22. Bapcor NZ, Bapcor retail segments were impacted by COVID-19 shutdowns, and supply chain challenges during 1HFY22.
• The NPAT declined from ~$67.7 million in 1HFY21 to ~$57.7 million, a decline of ~14.7% YoY in 1HFY22.
• During 1HFY22, BAP expanded its network with the opening of eight (8) retail stores, four (4) Burson branches, and six (6) specialist wholesale sites thereby now having a presence in over ~1,100 locations in Asia Pacific and Thailand.
• BAP further developed its logistics capabilities by consolidating its three largest warehouses in Victoria to its new distribution centre at Tullamarine. It continued to invest in digital transformation and technology.
• BAP declared a fully franked interim dividend of ~10.0 cents per share (cps), an increase of ~11.1% on 1HFY21.

Half Yearly Performance, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the COVID-19 impact of lockdowns and restrictions in New Zealand and Australia. The supply chain and labour challenges persist due to COVID-19 across all geographies.

Outlook:

• The company is progressing on implementing its current 5-year strategy to foster sustainable growth via network expansion, improvements in supply chain and logistics capabilities, etc.
• BAP aims to expand via acquisitions in 2022 besides driving organic growth. It expects a stronger 2HFY22 versus 2HFY21, given no further material COVID-19 impact.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BAP gave a negative return of ~6.40% in the past three months and a negative return of ~10.35% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $6.170 - $8.600. The stock has been valued using the P/E-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean P/E multiple, considering the impact of lockdowns during COVID-19, supply chain disruptions, and staff shortages. For this purpose of valuation, a few peers like Super Retail Group Ltd (ASX: SUL), ARB Corp Ltd (ASX: ARB), Eagers Automotive Ltd (ASX: APE), and others have been considered. Considering the current trading levels, network expansion, enhanced logistics capabilities, growth in private label sales, improved liquidity, continued market demand, expectations of a robust 2HFY22 on pcp, indicative upside in valuation, and associated key business risks, we give a ‘Buy’ rating on the stock at the closing market price of $6.580, down by ~2.519%, as of 24 February 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

BAP Daily Technical Chart, Data Source: REFINITIV  

Buddy Technologies Limited

BUD Details

Latest Developments: Buddy Technologies Limited (ASX: BUD) provides a data monitoring, management, and compliance reporting solution via its cloud-based data management platform. It serves customers in Australia and the United States.

• On 31 January 2022, Director, Mr. Richard Borenstein, received ~555,555 ordinary fully paid shares upon the exercise of performance rights as per an employee share plan for nil consideration.
• On 31 January 2022, Director, James Veyron Nelson, was issued ~78,125 ordinary fully paid shares upon the exercise of performance rights under an employee share plan for nil consideration.

 Summary of Q2FY22 (Oct-Dec 2021):

• The company reported a ~27% Q-o-Q increase in customer revenues to ~$8.0 million boosted by the holiday season and promotional periods of Christmas, Halloween, Thanksgiving, etc.
• The cash receipts amounted to ~$6.6 million, down by ~16% from Q1FY22 and ~21% from Q2FY21.
• The gross operating cash outflows decreased from ~$6.74 million in Q1FY22 to ~$5.81 million in Q2FY22.
• The adjusted EBITDA turned positive and amounted to ~$91,000 for Q2FY22 versus a negative EBITDA performance in Q1FY22 and Q2FY21 (pcp).
• The blended gross margins for the December 2021 quarter stood at ~43.1% which is a considerable rise from FY21 margins of ~25.8% given the fall in revenue and COVID-19 related impacts on warehousing, domestic shipping times, etc.

Positive Adjusted EBITDA in Q2FY22 Versus Q1FY22; (Analysis by Kalkine Group)

Key Risks: The company faces continued COVID-19 impacts due to shipping delays, staff shortages on its customer deliverables, processing at the distribution centre, etc. It also faces the risk of component shortages prevalent in the global semi-conductor industry.  

Outlook:

• BUD expects some softening of margins in Q3FY22 as it targets to dispose-off aged inventory to more suitable levels ahead of the promotional periods such as Amazon Prime Day. However, the company anticipates margins to remain meaningfully above empirical levels.
• The company is selling products more profitably than before on a per unit basis due to the reduction in the cost of goods sold and the introduction of an additional manufacturer. It plans to build upon its operational efficiencies in the next year.
• BUD is planning to start an online pre-sale program for its new colour downlight product, LIFX Colour 800 lights which is in the final pre-production manufacturing for launch in Australia/NZ and early pre-production manufacturing for launch in the US.

Stock Recommendation: The stock of BUD gave a negative return of ~46.66% in the past three months and a negative return of ~52.94% in the past six months. The stock is currently trading at part to its 52-weeks’ low level of $0.008. On a TTM basis, the stock of BUD is trading at an EV/Sales value multiple of 1.9x lower than the industry (Software & IT Services) median of ~5.0x, thus seeming undervalued. Considering the current trading levels, valuation on a TTM basis, quarterly updates and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.008, down by ~11.112%, as of 24 February 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

BUD Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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