Bapcor (ASX: BAP) is doing a capital raising. Is the price too cheap to ignore?
What is Bapcor?
Bapcor was originally called Burson Group. Today. Bapcor is a specialist auto parts business but what most consumers don’t know is that Bapcor is more than a retailer of spare parts.
Bapcor bread and butter is ‘trade services’. For example, when you get your car serviced by a mechanic, the mechanic doesn’t store all of the parts for the make and model of your car in their shop. Instead, they rely on a nearby distributor like Burson’s who can deliver the exact parts within a matter of hours.
Bapcor’s capital raising
Bapcor has announced it is raising up to $210 million. This will comprise a fully underwritten $180 million institutional placement and a non-underwritten share purchase plan (SPP) for up to $30 million for regular investors.
The raising price will be $4.40 per share, an 8.5% discount to the last trading price.
What will the money for used for?
Bapcor wants to strengthen its balance sheet and put the company in a strong position to continue to execute its 5-year strategy and any other growth initiatives.
The institutional placement will reduce Bapcor’s pro forma net debt as at December 2019 to $226 million and its ‘pro forma leverage ratio’ (being net debt dividend by 2019 calendar year EBITDA) to around 1.3x.
Is Bapcor a buy?
Year to date revenue to the end of February 2020 saw growth of 12.7%. However, the March performance was below expectations because of COVID-19 with growth of 11.5%, benefited by acquisitions.
Closed stores and less driving will hurt earnings. Management said Bapcor Trade revenue is down 20% in April compared to expectations. Bapcor New Zealand revenue is down 85% in April.
But, driving will return. Cars will still need new parts. I think the current share price, particularly the capital raising, is an attractive medium term opportunity. The share price is down a lot for a shorter term issue. But I’m wary of the long term with electric and automated cars. I’d rather buy these tech shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
