Bapcor reported strong FY23 revenue growth of 10% with EBITDA rising 3% for the full year. In the second-half sales grew 8% with EBITDA down 2%. Risks to Bapcor are focused on the impact of higher wages, plus increasing rent and overheads. The cost out program announced in November 2022 will help to mitigate these cost pressures. Bapcor enters FY24e with an improved inventory position after reporting a strong cash realisation in FY23. The sales growth trajectory is likely to soften from here as same store sales start to normalise.

JB Hi-Fi may have reported a solid FY23 result, but the second-half provides an indication of the challenges ahead. Its 2H23 sales fell 0.5% and EBIT was down 23%. We expect sales to drop 3.0% in FY24e with EBIT down 26%. The risk to gross margins is the key unknown from here in our view. Even though JB Hi-Fi’s inventory is clean, there is elevated inventory with some suppliers and retailers. We expect EBIT margins to revert to FY19 levels by FY25e. The prospects for capital management look slim given higher working capital and capex.

Metcash reported FY23 EBIT up 8% and 2H23 EBIT up 5%. While there has been some concern about a drop in demand, Metcash has demonstrated good sales trends relative to industry growth in all its segments. The company may not buck broader industry trends going forward, but its valuation provides a margin of safety relative to peers.