Is Burson Group a good buy?

Is Burson Group a good buy?

Burson Group Limited (ASX: BAP) again demonstrated the rewards reaped by those invested in value this reporting season. We met with management last week to discuss the result and we’ve posted below an ‘over-the-shoulder’ view of our notes.

• Full year revenue, EBITDA & underlying Net Profit After Tax grew by 10 per cent, 15 per cent & 19 per cent respectively for the underlying full year result. It is

important to note that statutory results have to be adjusted to remove the effect of one off transaction costs from the Metcash Automotive (MAH, previously owned by Metcash Limited (ASX: MTS)) acquisition and IPO in 2014.

• Revenue growth (10 per cent) was largely driven by same store sales growth of 4.6 per cent, this was driven by price rises (2-3 per cent with a revenue impact of 1 per cent) initiated from the supply side. In addition, the firm opened 14 new stores (7 acquired, 7 greenfield).

• In terms of performance by state, management guided that QLD, SA & NSW are doing well but VIC is flat. The firm has entered WA with greenfield stores and is reporting positive results from each of the new 3 stores.

• Gross margins (including freight) rose from 43.0 per cent to 43.7 per cent. This is pleasing in light of heavy competition from Repco over the past year and was driven by upselling initiatives within the firm.

• Management have flagged that they will negotiate over the coming year with suppliers and are hoping for bump up in gross margin per cent. This is on the back of the firm’s volumes increasing by 50 per cent as MAH is integrating into the firm.

• Opex growth (11 per cent) was driven largely by increases in personnel expenditure from the new store.

• EBITDA margin (ex-capital raising and other transaction costs) rose from 9.3 per cent to 9.7 per cent and on an incremental basis, 13.3 per cent to 15.7 per cent. Most of this improvement is generated on the COGS side highlighting the importance of continued gross margin expansion.

• Management provided earnings per share guidance for the 2016 financial year of mid-teens (ex-MAH). Note that with the inclusion of MAH, the business size will almost double over the coming year.

• At current prices, the firm appears slightly undervalued.

The Montgomery Fund and The Montgomery Private Fund hold positions in Burson Group Limited.

This article is for general advice and educational purposes only. Before you commit to any investment decision we strongly recommend you seek the counsel of a licensed investment adviser.

Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.