The Bapcor Ltd (ASX: BAP) share price is up by 10.7% over the past year, but it has been quite volatile in that time. It reached $5.01 in June 2017 and has regularly gone above $5.80. However, the price increase doesn't mean it isn't good value today.
Bapcor is Australia's largest auto parts company, it runs the Burson and Autobarn brands as well as a number of other specialist businesses.
In its half-year (HY) report to 31 December 2017 it delivered continuing operations revenue growth of 41.6%, pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 42.8% and earnings per share (EPS) growth of 36%.
This was a strong result, but there could be more growth to come. The management team at Bapcor have excelled at increasing profit margins at its old and newly-acquired businesses. Indeed, in the HY report the gross margin increased to 45.6% from 45% and the EBITDA margin increased to 11.4% from 11.3%. This is good news when the revenue is also growing strongly.
The biggest driver of earnings, Burson Trade, achieved same store sales growth of 3.4%. If like for like sales continue to grow above 3% then Bapcor should do well as it plans to increase the number of Bursons from 163 to 200 over five years.
I like that, theoretically, Bapcor's earnings could increase in bad times because car owners will want to make their car last longer as opposed to buying a new one. If a part breaks the car owner is likely to use Bapcor's service directly or indirectly through a mechanic.
Management said that it would have its first Asian store opened by May 2018 and the company is targeting five store openings during 2018. Asia is a very large potential market, so this could be a very good long-term move by Bapcor.
The company does have risks. Competitors are a relatively minor risk, but the shift to electric and automated cars could be a problem. Electric cars supposedly have less car parts, which likely will mean less parts need replacing. There is also a risk that the cars would be fixed by the car companies themselves.
Foolish takeaway
Bapcor is targeting continuing operations pro-forma NPAT growth of 30% for FY18. If it achieves this, today's price could represent good value. Indeed, the company is only trading at 25x FY17's earnings – PEG ratios of less than 1 are historically seen as attractive.
