Bapcor Crashes 22% to Multi-Year Low: Is BAP a Buy at 63% Below Fair Value?

Bapcor hits decade lows as turnaround stalls

Bapcor Ltd (ASX: BAP) shares crashed 22% to around A$1.88 on Monday, hitting their lowest level in over a decade. The auto parts retailer warned investors that its first half of FY26 will now be a loss of A$5 million to A$8 million. That’s a dramatic swing from the A$40.8 million profit it made in the same period last year and worse than the A$3 million to A$7 million profit it guided to just weeks ago. The stock is now down 70% over five years and roughly 60% year-to-date. The market clearly thinks this business is broken. But Morningstar still sees an A$5 fair value-more than double where shares trade today. Either this is a deep value opportunity, or the market knows something the analysts don’t.

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What Went Wrong- Trade Segment Drags and Margin Pressure

October and November trading came in “below expectations”, according to the company. The Trade segment was hit hardest, with tools and equipment revenue falling compared to last year. Parts revenue grew modestly, but it wasn’t enough to offset the weakness.
Management has been cutting prices to win back market share. While that might help volumes eventually, it’s crushing margins right now.

On top of the weak trading, Bapcor flagged A$19 million in one-off costs. This includes a A$15 million impairment on its tools and equipment business, A$3 million higher than previously expected, plus A$4 million in restructuring costs. A potential New Zealand impairment is still being assessed and could add further pain.

This paints a picture of a turnaround in trouble. The aggressive price cuts suggest management is scrambling to stop customers from leaving. That’s not a sign of strength; it’s damage control.

Balance Sheet Concerns Add to the Pressure

Making things worse, Bapcor is reportedly asking its lenders to increase its FY26 leverage covenant. In simple terms, the company wants permission to carry more debt relative to its earnings
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With such a weak first half, there’s little chance of paying down debt in the near term. CEO Angus McKay admitted the turnaround is “more challenging and taking longer than expected.”

This is a red flag for shareholders. When a company under financial stress needs to renegotiate with lenders, equity holders are last in line. If banks tighten the screws, it’s shareholders who feel the pain first.

The Investor’s Takeaway

There are two ways to look at Bapcor right now.

The bull case: Morningstar’s A$5 fair value implies 166% upside from current levels. The Trade segment has a narrow economic moat; its network stocks over 500,000 SKUs that competitors would struggle to replicate. Auto parts demand is also fairly resilient since car repairs aren’t discretionary. Management expects A$20 million in cost savings to flow through in the second half.

The bear case: This is Bapcor’s third profit downgrade this year. Management’s credibility is shot. The balance sheet is under pressure, and there’s real covenant risk if earnings don’t improve. The turnaround keeps getting pushed out further. There’s also a lingering worry about what else might be hiding in the numbers; inventory issues and accounting adjustments have surfaced before.

My take: For deep value investors with high risk tolerance, Bapcor offers significant upside if the turnaround works. But the balance sheet stress and repeated downgrades are hard to ignore. There’s no rush to buy a stock that keeps finding new lows.

If you’re interested, this looks like a “watch and wait” situation rather than a “buy the dip” opportunity. Let the company prove it can stabilise earnings before stepping in. Catching a falling knife rarely ends well, even when the valuation looks cheap.