EV Adoption And Online Marketplaces Will Erode Core Revenue

Key Takeaways

• Growing EV adoption and digital disruption threaten Bapcor's core revenue streams and erode traditional market share.
  
• Execution challenges and geographic concentration increase exposure to operational risks and fluctuations in local auto market demand.
  
• Aggressive digital upgrades, network expansion, efficiency measures, and diversified offerings position Bapcor for resilient long-term growth and margin improvement with strong financial flexibility.

Catalysts

Provides vehicle parts, accessories, automotive equipment, and services and solutions in Australia, New Zealand, Thailand, and internationally.

• The increasing adoption of electric vehicles is expected to structurally reduce demand for traditional aftermarket parts, as EVs require fewer wear-and-tear components and less frequent servicing, which will drive down Bapcor's long-term core revenue growth.
  
• The expansion of global online marketplaces and digitized distribution (such as Amazon or similar platforms entering the region) threatens to bypass traditional parts suppliers like Bapcor, resulting in long-term downward pressure on market share and gross margins even as Bapcor invests heavily in digital upgrades.
  
• Ongoing restructuring costs, headcount reductions, and the complexity of consolidating and simplifying operations expose Bapcor to persistent execution risk, which can translate into margin compression and increased likelihood of impairment charges or write-downs that negatively impact net earnings for multiple years.
  
• Bapcor's concentration in Australia and New Zealand makes it heavily reliant on the health of these domestic auto markets; any sustained weakness or shift to alternative mobility models such as ride-sharing will directly reduce addressable market size and revenue stability in the long term.
  
• Accelerating changes in vehicle technology, including manufacturer-specific telematics and OEM software locks, risk locking Bapcor out of servicing and parts supply for new vehicle models, eventually eroding both top-line revenue and return on invested capital as the independent aftermarket shrinks.

Bapcor Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Bapcor compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Bapcor's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.4% today to 4.9% in 3 years time.
• The bearish analysts expect earnings to reach A$99.1 million (and earnings per share of A$0.29) by about September 2028, up from A$28.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, down from 42.0x today. This future PE is lower than the current PE for the AU Retail Distributors industry at 41.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.32%, as per the Simply Wall St company report.

Bapcor Future Earnings Per Share Growth

Risks

• Bapcor's significant investments in digital transformation, such as upgrading B2B and B2C platforms and going live with a new pricing engine and e-commerce platforms, are already enabling improved customer experience, higher conversion rates, and operational efficiencies, which are likely to support higher revenues and improved margins in the long term.
  
• The ongoing expansion of Bapcor's network, with 21 new branches and stores opened and strategic acquisitions like the Motor Spares business in the ACT, increases access to growing vehicle parc and positions the company to benefit from rising average vehicle ages and vehicle complexity, potentially driving sustainable top-line growth.
  
• Strategic simplification, consolidation of warehouses and distribution centers, and targeted cost management have already delivered substantial cost savings, with projected ongoing annualized savings into FY26 likely providing a durable boost to net margins and earnings power as efficiencies are realized.
  
• Bapcor's diversified business portfolio, including investments in trade, specialist wholesale, retail, and adjacent segments like trucks and electrical, reduces reliance on any single segment and offers resilience and future revenue opportunities from secular trends in professional auto repair and aftermarket demand.
  
• The company still reports strong balance sheet metrics, positive free cash flow, and ample undrawn credit facilities, which provide the flexibility to invest in technology, footprint expansion, and potential M&A, thereby supporting long-term earnings growth and mitigating downside risks to shareholder value.

Valuation

• The assumed bearish price target for Bapcor is A$2.95, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Bapcor's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$6.0, and the most bearish reporting a price target of just A$2.95.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$2.0 billion, earnings will come to A$99.1 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of A$3.48, the bearish analyst price target of A$2.95 is 18.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.