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Bapcor Ltd (ASX: BAP) could claim to be one of the best defensive ASX shares to own for a few key reasons.
An auto parts business may not capture many of the headlines, but Bapcor has been steadily growing and has been delivering strong profit growth.
Here's why Bapcor actually has a really good claim to being one of the leading defensive ASX shares:
Countercyclical demand?
During normal and good economic times, Bapcor has seen good levels of growth. It has comfortably delivered good growth over the last few years.
But what about during recessions? Theoretically, plenty of retail businesses – in-fact most businesses – see lower demand during a recession. You'd also expect some like new car sales to decline during a recession.
But this can actually be a boost for Bapcor. Car owners would try to make their vehicle last longer during difficult economic times and this helps demand for Bapcor's businesses like Burson and Autobarn.
This is one of the main reasons that Bapcor can deliver defensive returns as an ASX share.
The COVID-19 recession has been particularly strange. Bapcor is seeing enormous demand, partly due to the economic stimulus. The HY21 result saw Bapcor revenue rise 25.8% and net profit after tax (NPAT) grew 49.7% to $67.7 million.
Growing network of domestic locations
Bapcor has a good record of same store sales growth at Burson, which is the key profit-making division within the business.
Burson continues to add five to ten more locations to its national network each year. The business is growing its client base each time it adds a new location and its earnings before interest, tax, depreciation and amortisation (EBITDA) margin. In the FY19 result its EBITDA margin was 14.9% and in HY21 it had increased to 18.3%.
Bapcor plans to increase the Burson, light commercial vehicle, specialist wholesale, retail and service location count significantly over the next few years.
Reliable dividend
Some businesses are able to provide their shareholders with reliable and consistent dividends which can make it easier to hold through volatile periods of time.
Bapcor is one of the few S&P/ASX 200 Index (ASX: XJO) shares to grow the dividend through the difficult year of 2020.
It has a dividend growth streak record going back several years to when it first started paying a dividend. Bapcor currently has a grossed-up dividend yield of 3.4%.
International growth
There is international growth potential with Bapcor. Not only does it now own a quarter of the largest auto parts distributor in south east and north east Asia, but Bapcor is also aiming to grow its Thailand Burson locations from six to more than 80.
This would translate to more than $100 million of revenue according to management. It could expand to other Asian markets after that.
These two Asian investments could drive growth for Bapcor for years to come.
