Bapcor’s (ASX: BAP) sales momentum has improved since the half-year result. But elevated fuel prices and higher interest rates are undermining this momentum. The company expects underlying fiscal 2026 EBITDA of $144 million-$150 million, a downgrade of about 5% at the midpoint. Shares fell 18%.

Why it matters: We lower our fiscal 2026 EBITDA forecast by 4% to $149 million, 40% below last year. Shoppers are cutting back on discretionary spending. Key competitor in its retail segment, Supercheap Auto, is also seeing a slowdown in demand. Fuel, freight, and costs of goods sold are inflating.

  • But Bapcor’s turnaround is finally gaining traction. Pricing is competitive again, stock availability has improved, and customers are returning. Sales growth has returned across all segments over the last three months, compared with declines over the prior seven months.
  • Bapcor is also beginning to claw back lost market share as bigger players capture share from smaller competitors. We estimate similar market share gains from Bapcor’s major competitors, Supercheap Auto and Genuine Parts-owned Repco, with similar recent sales growth.

The bottom line: Shares in no-moat Bapcor are materially undervalued compared with our unchanged $1.60 fair value estimate. The current share price implies further market share losses and no recovery in EBITDA margins.

  • We think market share losses have stabilized as investments in its network and lower prices rectify service and pricing missteps. But we expect price investment to weaken profitability. We forecast EBITDA margins of 8% in fiscal 2026, down from 12% last year.
  • However, we expect partial margin recovery as market share is won back. We forecast EBITDA margins to recover to around 12% over the next decade, slightly below fiscal 2025 margins and well below the peak, driven by operating leverage, improved buying power, and higher private-label penetration.

Bapcor’s margins have rebased

We expect a turnaround in Bapcor’s earnings per share from fiscal 2027, thanks to favorable industry dynamics. We forecast Bapcor to resume share gains in the fragmented trade market as it rolls out stores. We forecast a double-digit EPS compound annual growth rate over the next five years as the business recovers from trough earnings in fiscal 2026, improving same-store sales growth of around 2% per year, and growing private-label penetration.

The automotive spare-parts industry is resilient. Automotive spare parts, required for routine maintenance and repair of vehicles, are less affected by changes in discretionary income and consumer confidence, and demand is broadly driven by the increasing pool of vehicles. We expect the number of registered vehicles to continue growing at a low-single-digit CAGR over the next decade, roughly in line with population growth. We estimate there are currently around 20 million passenger vehicles in Australia with an average age of about 11 years. We also argue an element of countercyclicality for auto parts. While maintenance can be delayed to some extent, it cannot be ignored completely. Conversely, we expect new-vehicle sales to slow in an economic downturn as consumers choose to maintain their existing car rather than upgrade to a newer vehicle.

We expect Bapcor’s trade business to invest in price and service to win back market share by supplying parts to commercial customers more quickly, reliably, and at a lower cost. Bapcor’s trade store network allows it to stock over 500,000 stock-keeping units, many of these slow-moving, for over 20,000 different vehicles—an offering that we believe smaller players will struggle to replicate. Bapcor is investing in this competitive position, investing in price and service, and targeting an increase in stores in Australia and New Zealand.

Bulls say

  • The trade segment is highly fragmented, affording significant headroom for Bapcor to capture share at the expense of smaller players.
  • As vehicles become increasingly more complex, DIY customers could gravitate toward outsourcing to mechanic workshops—customers of Bapcor’s higher-margin trade business.
  • A strong balance sheet affords Bapcor the ability to execute its store network expansion and potentially pursue further accretive acquisitions.

Bears say

  • Electric vehicles present a longer-term threat to Bapcor’s business, as they have fewer moving parts.
  • Existing trade customer relationships could be difficult to replace, given their relative price inelasticity, damping Bapcor’s store network expansion plans.
  • A consumer shift to digital sellers (such as Amazon) or more competitive activity from the two larger players in the DIY segment could increase pricing pressure on Bapcor’s retail business.