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Copart (CPRT)

Copart (CPRT). Dan DeRose Jr. Presented December 5, 2006. Presentation Outline. Company overview RCMP position Market overview Industry overview Porter’s five forces Firm strategy and development Stock Performance Portfolio fit Firm Performance Dupont analysis Margins analysis

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Copart (CPRT)

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  1. Copart(CPRT) Dan DeRose Jr. Presented December 5, 2006

  2. Presentation Outline • Companyoverview • RCMP position • Marketoverview • Industryoverview • Porter’s five forces • Firmstrategy and development • Stock Performance • Portfolio fit • FirmPerformance • Dupontanalysis • Margins analysis • Valuation • DCF • Recommendation

  3. Part 1: Company overview

  4. Copart – TheBusiness • 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 > ACV - salvage value

  5. Copart – The Business • Customers: vehicle dismantlers, rebuilders, used vehicle dealers, exporters

  6. 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)

  7. 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

  8. 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

  9. Part 2: RCMP Position

  10. 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

  11. RCMP Postion • Portion of portfolio market value:

  12. Part 3: Market overview

  13. 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 Nation’s Highways, Bridges and Transit: Conditions and Performance. Market Overview

  14. 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

  15. Part 4: Industry Overview

  16. Porter’s 5 Forces

  17. Part 5: Firm strategy and development

  18. 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

  19. Part 6: Stock performance

  20. Stock performance • Stock price: $29.80 • 52 week range: $21.14 - $30.39 • CPRT vs. NASDAQ and S&P for 1 year and 5 year intervals

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

  22. Part 7: Portfolio fit

  23. Portfolio fit Correlation Matrix

  24. Part 8: Firm performance

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

  26. 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

  27. Part 10: Valuation

  28. Discounted Cash Flow • Basic assumptions • Revenues continue to show steady increase as CPRT continues to purchase and integrate new facilities • G&A 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

  29. Discounted Cash Flow • Step 1: Forecast FCF • Step 2: Find WACC

  30. Discounted Cash Flow • Step 3: Calculate PV of FCF • Step 4: Subtract L-T debt and divide by shares outstanding

  31. Discounted Cash Flow • Sensitivity analysis

  32. 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!

  33. 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

  34. Questions?

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