Bapcor Limited

BAP Details

Agreement for Equity Stake in Tye Soon: Bapcor Limited (ASX: BAP) is engaged in the sale and distribution of vehicle parts, accessories, automotive equipment, etc. The market capitalisation of the company as on 22 March 2021, stood at ~$2.51 billion. As per a recent update, the company has announced that it has signed agreements to acquire 25% of the equity of Tye Soon Limited and thus expand its presence in Asia. Tye Soon is an independent automotive parts distributor in South East and North-East Asia. BAP plans to work with Tye Soon and make use of opportunities to grow its businesses in Asia as well as Australasia.

H1FY21 Financial Update: The company reported decent financial performance during the period, with an improvement in revenues by 25.8% to $883.6 million, compared to the previous corresponding period. EBITDA grew by 36.5% to $145.6 million and NPAT by 54% to $70.2 million. The Group has declared an interim dividend of 9 cents per share on the back of impressive financial performance. The net debt of the company stood at $120.4 million as on 31 December 2020.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The business performance of the company has continued at similar levels in January 2021, as in during the first half of FY21. The vehicle aftermarket continues to remain strong fundamentally and the impact of COVID-19 has helped its cause. There has been an increase in second-hand vehicle sales as a result of social distancing norms and utilisation of private vehicles for holidays.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 company did not receive any government subsidies during H1FY21. As per ASX, the stock of BAP is trading above its average 52-weeks’ levels of $2.850-$8.530. The stock of BAP gave a positive return of ~7.98% in the past six months and a positive return of ~3.19% in the past one week. On a technical analysis front, the stock of BAP has a support level of ~$7.175 and a resistance level of ~$8.016. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer median EV/Sales (NTM Trading multiple), considering the impressive financial performance and decent market outlook. For the purpose, we have taken peers such as ARB Corp Limited (ASX: ARB), GUD Holdings Limited (ASX: GUD), Autosports Group Limited (ASX: ASG), to name a few. Considering the valuation, decent performance in H1FY21 and signing of agreements to acquire a stake in Tye Soon Limited, we recommend a ‘Hold’ rating on the stock at the current market price of $7.440, up by 0.540% as on March 22, 2021.

BAP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Freedom Foods Group Limited

Update on Dispute with Blue Diamond: Freedom Foods Group Limited (ASX: FNP) is a branded consumer food and beverage group. As per a recent announcement, the company has provided an update on its legal dispute with Blue Diamond Growers in regards to a licence agreement to manufacture and distribute the Blue Diamond Almond Breeze products. Four subsidiaries of the FNP have filed an application for leave to appeal against the judgement of the Federal Court of Australia, and have its legal disputes with Blue Diamond heard and determined in the Federal Court of Australia, rather than in the California arbitration.

Recapitalisation Plans: On March 19, 2020 the company has announced that it will raise capital up to $265 million through the issuance of unlisted, subordinated secured convertible notes. It also plans to restructure its existing senior debt facilities with HSBC and NAB. The round is expected to witness invitation to eligible investors to participate in an offer of up to $130 million of notes under the Wholesale Investor Offer, and placement of notes up to $200 million to Arrovest. The company has the provision to scale back Arrovest’s investment to a minimum of $135 million, depending on the demand under the Wholesale Investor Offer. FNP plans to use the proceeds to repay between $183 million to $233 million of the existing debt and provide additional capital to support its turnaround strategy.

Key Dates (Source: Company Reports)

Key Risks: There is uncertainty surrounding various legal actions which the Company is currently defending or potentially required to defend. FNP has informed that until the settlement of its legal actions, and improvement of its operational and financial performance, its share price might get materially impacted. Moreover, it may not be able to pay dividends to its shareholders. The company also briefed that if the company is not able to complete this Capital Raising by raising the minimum amount of $200 million, the company might no longer be able to continue as a going concern. The company will seek the approval from the shareholders regarding the Recapitalization in the week commencing 17 May 2021. The settlement of notes will occur post approval from shareholders.

Stock Details: The company has recently appointed agribusiness executive Michael Perich as the permanent Chief Executive Officer, effective 19 March 2021. The company’s securities which have been suspended from official quotation on 25 June 2020, have recommenced trading on the ASX with the reinstatement to official quotation on 22 March 2021 onwards. The current market price of the stock is at $0.53, down by 82.393% as on March 22, 2021.

FNP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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