Bapcor Limited

BAP Details

FY21 Financial Performance: Bapcor Limited (ASX: BAP) is engaged in the sale and distribution of vehicle parts, accessories, automotive equipment, etc. On 23 November 2021, BAP announced that Darryl Abotomey, the CEO and Managing Director, will retire on 28 February 2022 and be available to the company until 30 June 2022 to deliver a smooth transition.

• Resurgence Sought in Top-Line: In FY21, BAP reported $1.76 billion in revenue, up by 20.4% YoY. Strong growth, specifically in Trade, Specialist Wholesale, and Retail segments, underpinned improved market share, ongoing network expansion and launch of new brands.
• Bottom-Line Performance: BAP reported $280 million in EBITDA, up by 28.8% YoY. Improved operating results were primarily driven by top-line growth, prompt focus on cost management, constrained costs amidst COVID-19, and new store businesses/deliver on acquisition.
• Cash Flow Movements: Operating cash flows declined to $151.9 million from $202.3 million due to a reduced cash conversion rate from 115.9% in FY20 to 74.3% in FY21, affected by higher working capital to ensure satisfying elevated demand. Capex activities surged with store acquisitions and Greenfields.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

Being in the automotive industry, the business assumes a high cyclical risk, dominant given unprecedented times. In addition, with international operations in place, BAP is exposed to high forex risks.

Outlook

• COVID-19 has established specific trends in the automotive industry, notably increased sales of second-hand vehicles, travellers moving away from public transport, and increased spending on domestic travel.
• Significant business opportunities include network growth, increased market share through Victorian DC, procurement and supply chain efficiency, and development of own brands.

Valuation Methodology: EV/Sales 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 ~3.073% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $6.620 - $8.600. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers, given favourable shifts in consumer demand from the public to private transport. For valuation, a few peers like Supply Network Ltd (ASX: SNL), ToysRUs Anz Ltd (ASX: TOY), National Tyre & Wheel Ltd (ASX: NTD) have been considered. Given the solid interim results, prudent cash position, expansion strategies, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the closing market price of $6.920, down by ~3.487%, as of 1 December 2021.

BAP Daily Technical Chart, Data Source: REFINITIV

Temple & Webster Group Limited

TPW Details

FY21Financial Performance: Temple & Webster Group Limited (ASX: TPW) is an online retailer of homewares and furniture in Australia. The company operates on a drop-shipping model whereby products are shipped directly to the end-user by the suppliers, reducing the need of holding inventory.

• Top Line Performance: In FY21, revenue inclined to $326.3 million, up by 85% YoY. TPW has established a significant online presence which translated into a 62% YoY increase in active customers. In addition, revenue per active customer has surged by 12% due to higher average order value and repeat rate.
• Operating Metrics: Gross margin inclined to 45.4%, up by 80bps PcP due to solid growth in private label. EBITDA clocked $20.5 million, up by 141% YoY, primarily driven by a decline in fixed costs as a proportion of revenue to 7.9% from 10.0% in the prior period and improved gross margins. NPAT stood at $14.0 million, which surged by 165% on a normalised basis.
• Financial Position: TPW is held onto a $97.5 million cash balance with no long-term borrowings. The company registered positive cash flow from the operation of $24.506 million. The 12-month marketing ROI remains resilient at 2.3x after considerable investment in TV and brand building.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

Key Risks and Challenges

TPW’s business depends on the smooth function of its digital platforms. Any technical glitch can harm the company reputation and cause high financial losses. In addition, increased competition from traditional retail platforms shall gear up as containment measures lift.

Outlook

TPW’s B2C furniture and homewares segment operate in an ~$16 billion markets, with less than 9% sold on online platforms. TPW differentiates with a diverse product portfolio that includes 200+ suppliers in 210 categories. With 74% operations in the drop-ship business model, the company’s inventory risks are well mitigated. The company is reinforcing unit economics via increased scale, delivering cost advantages, product marketing, sourcing, and logistics.

Valuation Methodology: EV/Sales 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 TPW gave a positive return of ~5.379% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $8.010 - $15.000. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering improving unit economics and significant operations on resilient digital platforms. For valuation, few peers like Redbubble Ltd (ASX: RBL), Kogan.com Ltd (ASX: KGN), Mydeal.Com Au Ltd (ASX: MYD) have been considered. Given the current trading levels, prudent online presence, increased website traffic, an exponential uptick in top-line, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $10.320, as of 01 December 2021, 11:19 AM (GMT+10), Sydney, Eastern Australia.

TPW Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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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