A high conviction idea to ride out the storm

Vince Pezzullo

Perpetual Asset Management (Australia)

Markets are in for a long bout of volatility as the realities of ongoing geopolitical strife, higher inflation and policy uncertainty play out. Locally, an Australian election year may also impact policy making on businesses and economic spending. 

For that reason, we are currently seeing more opportunities in Australia than globally. Cash levels have increased in order to keep powder dry for when opportunities to take new positions or add to existing positions arise. 

It remains important to have a high conviction portfolio of diverse ideas to ride out the storm. One such company is Bapcor (ASX: BAP).

Bapcor primarily operates in the automotive aftermarket segment, with a large network of stores distributing auto parts on a just in time basis to mechanics throughout Australia and New Zealand. Their business spans the aftermarket supply chain covering trade, commercial vehicles, specialist wholesale and retail. 

We established a position in BAP in December 2021. This followed BAP’s announcement in late November that their longstanding CEO was stepping down, about 18 months before his contract was due to expire. It was apparent that there had been disagreement between the Board and the CEO and that the Board felt the need to accelerate his exit from the company. 

The stock was heavily sold off following the announcement and fell by over 20% in the following weeks. Whilst our view remains that the now former CEO had led the business successfully we felt the sell-off provided an opportunity to buy a high quality business at an attractive price. 

We believe BAP’s success stems from its strong competitive position and exposure to attractive end markets and not from any one person. The business has a clear strategy focused around ongoing store rollout and increasing private label product penetration that is proven and low risk. 

This was validated in BAP’s half year results for financial year 2022 announced in February. BAP reported an increase in revenue, strong balance sheet and solid progress on its network expansion and new supply chain and logistics capabilities. 

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Vince Pezzullo
Deputy Head of Equities
Perpetual Asset Management (Australia)

Vince is the Deputy Head of Equities at Perpetual Asset Management Australia and is the Portfolio Manager for Australian Share, Geared Australian Share and the Perpetual Equity Investment Company Limited (ASX:PIC).

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