Management uncertainty at Bapcor (ASX: BAP) has settled with the appointment of Angus McKay. Most recently leading 7-Eleven Australia, McKay is set to take over as Bapcor’s executive chair and CEO on Aug. 22, 2024.

The company had fallen into turmoil when prior appointment Paul Dumbrell, poised to take the helm from May 1, 2024, decided not to join at the eleventh hour—with little detail on why. Crucially, despite management turnover, we continue to think Bapcor’s competitive position remains intact. Bapcor’s trade network, which underpins its narrow economic moat, enables it to supply a wider range of often slow-moving parts more quickly and at a lower cost than smaller competitors.

Separately, Bapcor rejected Bain’s takeover proposal of $5.40 per share—a price we considered too low compared with our unchanged $7.30 fair value estimate. We think Bain was looking to capitalize on share price weakness following poor performance in the retail business and management tumult. We have not factored additional offers into our valuation.

We think earnings weakness, primarily due to a cyclical slowdown in discretionary spending, is weighing on Bapcor’s retail business—about 20% of group earnings. We estimate about half of retail earnings are linked to the sale of discretionary products, which are under pressure given the weak consumer backdrop, and from competitive pressure as the likes of Supercheap Auto look to capture market share.

But we think the trade and specialist wholesale businesses are more resilient. Indeed, the company noted continued sales growth in these divisions. Cost-of-living pressures are less likely to affect demand for automotive spare parts, which we expect to be driven by the gradual increase in the number of vehicles on Australian roads. Bapcor maintained fiscal 2024 earnings guidance of $93 million-$97 million. We maintain our $96 million forecast.