Copart (CPRT)

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Copart(CPRT)

• Dan DeRose Jr.
• Presented December 5, 2006

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Presentation Outline

• Company overview
• RCMP position
• Market overview
• Industry overview
• Porters five forces
• Firm strategy and development
• Stock Performance
• Portfolio fit
• Firm Performance
• Dupont analysis
• Margins analysis
• Valuation
• DCF
• Recommendation

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Part 1 Company overview
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Copart The Business

• Business salvage vehicle sales and services
  provider with 122 locations
• Suppliers Financial institutions, vehicle
  leasing companies, automobile rental companies,
  charities, automobile dealers, insurance
  companies
• 83 of vehicles from insurance companies
• 14 from State Farm
• Vehicles either damaged in accident or stolen and
  claim already paid
• If in accident, deemed total loss if
• repair cost gt ACV - salvage value

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Copart The Business

• Customers vehicle dismantlers, rebuilders, used
  vehicle dealers, exporters

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Sales Process

• VB2 Virtual Bidding Second Generation
• Internet based auction-style model with
  registered participants
• Shows highest current price, enter highest amount
  willing to pay, BID4U feature will incrementally
  bid for you (EBAY)
• Affect increased pool of available buyers and
  added competition
• FY 2006 50 of sales made to out of state
  buyers (24 out of country)

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Sales AgreementsVehicle Processing Programs

• Percentage Incentive Program (PIP) sell all
  salvage vehicles at a predetermined percentage of
  sales price
• Revenues directly linked to sales price
• Provide transport of vehicle to facility,
  storage, DMV processing at no expense
• Fixed Fee Consignment generally 50 - 175
• Charge extra for transportation, storage,
  processing

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Services

• CoPartFinder search engine enabling users to
  locate used parts quickly and efficiently
• Lists vehicles recently sold through VB2
• Allows vehicle dismantlers and resellers to
  streamline parts sale process and access a large
  pool of buyers (incentive)
• Virtual Insured Exchange (VIX) venue for
  insurance companies to enter vehicle into live
  auction to establish true value
• ProQuote proprietary software service that
  assists suppliers in vehicle claims evaluation
  process by providing online salvage value
  estimates

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Part 2 RCMP Position
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RCMP Position

• Transaction history
• 2003
• BOT 1000 at 7.82
• Gains Losses
• BV of holding 7820
• Realized capital gains 0
• Unrealized capital gains 21,980
• Market value of holdings 29,800

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RCMP Postion

• Portion of portfolio market value

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Part 3 Market overview
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Market Overview

• Road congestion
• Between 1982-2002, miles traveled increased 79
  while highway lane miles increased 3
• Congested roads grew from 34 to 58 during same
  period
• Current situation
• 2000 Federal Highway Administration report states
  the average annual Cost to Maintain Highways and
  Bridges projected for the 2001-2020 period is
  11.3 billion (17.5) higher than 2000
  expenditures, while the Cost to Improve Highways
  and Bridges exceeds current spending by 42.2
  billion (65.3)

• Comparison of Spending and Investment
  Requirements, 2002 Status of the Nations
  Highways, Bridges and Transit Conditions and
  Performance.

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Market Overview

• Automobile design
• Manufacturers are incorporating certain design
  features that increase passenger safety
• Unibody construction, passenger safety cages with
  crumble zones, plastic components, airbags, and
  computer systems
• Safety features will make it more likely for
  vehicles to be deemed total losses if involved in
  accident
• Gasoline prices
• Shrink margins under PIP program
• Significant increases could lead to reduction in
  miles driven per car and a reduction in accident
  rates

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Part 4 Industry Overview
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Porters 5 Forces
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Part 5 Firm strategy and development
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Firm Strategy and development

• Acquire and develop new salvage vehicle
  facilities in key markets
• Opened 11 facilities is FY 2006 and 10 in FY 2005
• Pursue national and regional vehicle supply
  agreements
• Primarily with insurance companies
• Expand service offerings to suppliers and buyers
• Expand offerings to include offering software
  that can assist suppliers in expediting claims
  and salvage management tools that integrate
  databases
• Refine VB2 and continue to integrate into
  acquired facilities

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Part 6 Stock performance
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Stock performance

• Stock price 29.80
• 52 week range 21.14 - 30.39
• CPRT vs. NASDAQ and SP for 1 year and 5 year
  intervals

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Stock performance

• CPRT vs. KAR (ADESA) for 1 year and 5 year
  intervals
• Only pure player competitor

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Part 7 Portfolio fit
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Portfolio fit
Correlation Matrix
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Part 8 Firm performance
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Firm performance

• ROE driven by increasing profit margin in recent
  periods.
• Profit margins hurt in FY 2006 by Hurricanes
  Rita and Katrina

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Firm performance

• Decrease to operating and net profit margins in
  FY 2003 caused by increase in yard and fleet
  expenses due to handling increased volume at
  existing operations and the costs of new
  facilities CPRT FY 2003 10-k pg. 24
• The increases in yard expenses were primarily
  attributable to the cost of handling increased
  volume, a general increase in subhauling costs
  and the incremental abnormal costs incurred as a
  result of hurricanes Kartina Rita. CPRT 10-k pg.
  33

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Part 10 Valuation
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Discounted Cash Flow

• Basic assumptions
• Revenues continue to show steady increase as CPRT
  continues to purchase and integrate new
  facilities
• GA decreases slightly over time as installation
  of VB2 becomes complete
• Must still maintain staff to service/upgrade
• Vehicle pooling costs increase due to increases
  in gas prices and towing costs
• Under Percentage Incentive Program, can not pass
  these costs onto customer resulting in smaller
  margins

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Discounted Cash Flow

• Step 1 Forecast FCF

• Step 2 Find WACC

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Discounted Cash Flow

• Step 3 Calculate PV of FCF

• Step 4 Subtract L-T debt and divide by shares
  outstanding

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Discounted Cash Flow

• Sensitivity analysis

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Discounted Cash Flow

• Downside scenario
• Gas prices rise significantly

• Worst case scenario
• CPRT loses big insurance companies as vehicle
  suppliers
• Remember, 83 from insurance companies and 14
  from State Farm alone!

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Recommendation

• HOLD all 1000 shares of CPRT
• CPRT has shown continued ability to purchase and
  integrate new facilities into current system
  without debt
• CPRT continues to develop its service offerings
  setting the curve in the industry

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Questions?