Bapcor Limited

BAP Details

Director’s Interest Notice: Bapcor Limited (ASX: BAP) operates in the automotive aftermarket business selling vehicle parts, automotive equipment, accessories, services, and solutions. On 1 March 2022, Mark Bernhard acquired ~5,000 fully paid ordinary shares in the company. In another update, AustralianSuper Pty Ltd increased its shareholding from ~8.15% to ~9.15% in the company

1HFY22 Result Takeaways:

• Top & Bottom-Line Details: The company posted an increase in statutory revenue from $883.6 million to $900.1 million, up by 1.9% on a year over year basis. Revenue increased as lockdowns and COVID-19 restrictions eased, determining a positive path going into 2HFY22. BAP recorded a statutory net profit after tax of $57.7 million, down by 14.7%.
• Interim Dividend: The board has announced a fully franked interim dividend of 10 cps in 1HFY22, up 11.1% YoY.
• Rise in Pro-forma Net Debt: The company reported $203 million of pro-forma net debt as of 31 December 2021, up by $164.1 million from 30 June 2021 due to considerable investment in inventory.
• Synergies from Acquisitions: Since 31 December 2021, BAP acquired two businesses, one in Bapcor Trade and one in Specialist Wholesale, collectively adding annualised revenue of ~$50 million.

Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of product availability, given the ongoing shipping and supplier constraints due to the COVID-19 impact of lockdowns and restrictions. The supply chain and labour challenges persist across all geographies, which add to the woes.

Outlook: The company remains on track with robust progress on delivering its existing 5-year strategic targets to drive long-term sustainable growth, which consists of ongoing network expansion, new supply chain and logistics capabilities.  In FY22, BAP aims to deliver pro forma earnings of least at the level of FY21, subject to no further material COVID-19 impacts

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 ~15.79% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $6.17. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers, considering the impact of lockdowns during COVID-19, supply chain disruptions, and staff shortages. For the purpose of valuation, few peers like Supply Network Limited (ASX: SNL), ToysRUs Anz Limited (ASX: TOY), National Tyre & Wheel Limited (ASX: NTD) have been considered. Considering the current trading levels, rise in top-line in 1HFY22, enhancing shareholder’s value, decent long-term, continued investment in digital transformation, indicative upside in the valuation, we give a ‘Buy’ rating on the stock at the current market price of $6.19, as of 7 March 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia. 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  

Adairs Limited

ADH Details

Director’s Interest Notice: Adairs Limited (ASX: ADH) is an omni-channel speciality retailer that offers homewares, furniture, and home furnishings through retail stores and online channels. In a recent update, ADH announced that David John Milroy MacLean, a director in the company, has acquired 420,000 fully paid ordinary shares and disposed 420,000 fully paid ordinary share for a consideration of $1,201,200.

1HFY22 Results Highlights:

• Group Sales: During the period, the company reported a slight decline of 0.5% YoY in its group sales to $ $241.8 million (including a $12.5 million contribution from Focus). Group online sales (excluding Focus) went up by 8.2%, contributing 42.6% of Group Sales.
• EBIT & NPAT: Underlying EBIT for 1HFY22 stood at $32.9 million, compared to $60.2 million in 1HFY21, and $22.6 million in 1HFY20. Statutory NPAT for 1HFY22 stood at $17.6 million. EPS for the period came in at 10.4 cents per share.
• Decent Dividend: For 1HFY22, the company has paid an interim fully franked dividend of 8 cents per share, with a record date of 22 March 2022, and a payment date of 14 April 2022.

Sales Highlights; (Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to the COVID-19 challenges, including government-mandated store closures, vaccination requirements, etc. Due to the global supply chain conditions, the freight and other sourcing costs have increased, which might place additional downward pressure on gross margins.

Outlook: Looking ahead, the company expects clear opportunities for growth in 2HFY22, given the good in-country stock levels.  ADH expects its member retention initiatives and the facilitation of online sign-ups to offer significant upside to existing growth rates. Further, ADH believes that the growing store floor space through new and up-sized stores will help in driving store sales.

Valuation Methodology: P/E 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 ADH gave a negative return of ~31.5% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $2.76. The stock has been valued using a P/E based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers, considering the challenges associated with the COVID-19 pandemic, including government mandated store closures, global supply chain disruption, etc. For the purpose of valuation, few peers like Super Retail Group Ltd (ASX: SUL), Peter Warren Automotive Holdings Ltd (ASX: PWR), Vita Group Ltd (ASX: VTG), and others have been considered. Considering the current trading levels, reopening of stores, expected benefits of member retention initiatives and the facilitation of online sign-ups, dividend declaration, upside in valuation, long-term outlook, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $2.77, down by ~4.483%, as of 7 March 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.

ADH 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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