Bapcor reported FY24 sales of $2.03 billion up 1% and EBITDA of $269 million down 10%. Net profit fell by 24% pre significant items on higher interest costs. The company reported a small improvement in sales early in FY25e. However, the drop in 2H24 profit margins is likely to result in only modest EBITDA growth for FY25e even though the company has cost savings to flow through. During the second-half all Bapcor’s divisions had negative same store sales performance with Trade down by 1.5%, Retail down 1.0% and New Zealand lower by 0.5%.

Bapcor has disclosed a conditional indicative offer from Bain Capital at $5.40 per share, a 23% premium to the 1-month VWAP. We expect the Board will view the offer as opportunistic and may not even allow due diligence at the prevailing offer price. Bapcor’s EBITDA margins are well below US peers and its own aspirations under the Better Than Before program. While Bapcor’s realisation of cost savings has clearly been delayed, the company still believes in the long-term potential for better profit margins. We place a 25% probability of a takeover proceeding for Bapcor. A successful takeover offer will require a price over $6.00 per share in our view and Board support.

Bapcor provided a trading update with detail on the sales growth for the nine months to 31 March 2024 and guided to FY24e proforma NPAT of $93-97 million. Sales trends for the nine months were mostly lower than the 1H24 sales trends. The fundamental debate remains the outlook for the cost saving program (Better Than Before). Management instability makes it difficult to see the cost savings being delivered anytime soon and the net benefits may be far smaller than the gross $100 million savings.

Bapcor reported 1H24 sales up 2% and EBITDA down 2%, with net profit down 12% given higher interest costs. The company’s sales decline in its Retail division is likely to ease in 2H24e. However, interest costs will remain a headwind to profits again this half. The fundamental debate remains the outlook for Bapcor’s cost savings program (Better Than Before). With a change of CEO, the company has acknowledged the phasing may shift. We expect an additional year delay in the timing of cost savings.