Could Bapcor Ltd (ASX: BAP) be one of the most defensive ASX shares available to invest in for Aussies?
What’s Bapcor?
It’s the biggest Australasian auto parts business. It generates the biggest part of its profit from Burson, which is a business that supplies mechanics with parts in as little as 2 hours.
It has Autobarn, a nationwide retail network. It also has various other businesses related to cars and trucks, plus it has a New Zealand business, which is similar to the core Australian business. Bapcor also has a small, but growing, Asian division.
Why is it so defensive?
Using a car is an important part of life in Australia and New Zealand. Whether it’s getting to work, school or for leisure, many of us use a car almost every day. Car parts need replacing in normal times. But in tougher times, it’s logical to think that people are more likely to replace a broken car part than to buy a whole new car. Car owners will try to make their existing car last longer.
Bapcor is involved in all parts of the process. Whether consumers get their parts directly from Autobarn, or via their mechanic from a Burson.
The ASX share could also be considered defensive thanks to the steadily-growing dividend. It has increased its dividend every year since it started paying one several years ago, including through COVID-19.
But it actually offers a lot of growth potential…
Bapcor may not seem like the type of business that can deliver strong growth, but it continues to offer growth potential, at least for the medium term.
Despite everything that’s going on, Bapcor’s recent trading update was very strong. It said that in the first quarter of FY20, Burson Trade saw revenue rise by 10%, with same store sales up 7.7% (and up 17% excluding Victoria).
New Zealand revenue grew by 6% with same store sales up 4%. Retail (largely Autobarn) sales grew 47%. Autobarn same store sales (SSS) grew by 36%. Specialist wholesale revenue rose by 45%. Excluding acquisitions, revenue went up 18%.
Overall, Bapcor’s revenue was up 27%.
In the medium term, the company’s Asian division offers a lot of potential. It has six locations in Bangkok, Thailand. Bapcor believes there’s the potential to expand to 60 to 80 locations.
Over the next five years, the company believes it can increase its national footprint quite considerably, whilst selling more own-brand products. For example, it plans to expand to 240 Australian trade stores, where it currently has 186. Plus, it thinks it can grow to 500 Australian service locations, whereas it only has just over 100.
A great time to buy?
There could be much more driving in Australia over the rest of FY21, which may mean more parts need replacing. Using CommSec estimates, it’s valued at under 18 times the estimated earnings for the 2023 financial year.
Growth of electrical cars could be problematic in the future, but there will still be tons of non-electric cars on the road for many years – particularly if electrical charging stations remain limited.
Bapcor could be a solid defensive idea for the next five years, but there are other ASX growth shares I’d rather buy such as Pushpay Holdings Ltd (ASX: PPH) which could be even more defensive, such is the nature of (religious) donations.
