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Copart, Inc.

Copart, Inc. by Brandon Lee and Xiaoting Yang. PRESENTATION OUTLINE:. Company Background Company Overview Business Strategy Competition Acquisition History Recent Events Stock & Portfolio Recent performance Portfolio positioning Correlation matrix Valuation Business Analysis

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Copart, Inc.

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  1. Copart, Inc. by Brandon Lee and Xiaoting Yang

  2. PRESENTATION OUTLINE: • Company Background • Company Overview • Business Strategy • Competition • Acquisition History • Recent Events • Stock & Portfolio • Recent performance • Portfolio positioning • Correlation matrix • Valuation • Business Analysis • Key Assumption • Model & Calculation • Conclusion & Recommendation • Appendix: Macroeconomic Effects

  3. PART I: COMPANY BACKGROUND • Company Overview • Business Strategy • Competition • Acquisition History • Competition • Recent Events

  4. COMPANY OVERVIEW • A leading provider of vehicle remarketing services in the United States (US) and the United Kingdom (UK) • Provide vehicle suppliers with a full range of remarketing services to process and sell salvage vehicles • Sales are done primarily over the Internet through their Virtual Bidding Second Generation Internet auction-style sales technology (VB2)

  5. COMPANY OVERVIEW – TWO MODELS • Revenues: • U.S. and Canada: • CPRT acts primarily as an agent • Derives revenue through fees from buyer, seller, and services • U.K.: • CPRT acts primarily as a principal • Derives revenue by purchasing vehicles outright from insurance companies and reselling them to buyers through live auctions and internet sales • Intend to implement VB2 in 2008

  6. U.S. BUSINESS MODEL Person: gets into a bad accident Dismantlers Used Car Dealers Copart: provides services for both supplier and buyer Insurance Company: purchases the totaled car and wants to sell it at the highest price Rebuilders Exporters • Copart, as a middleman, brings the buyers and suppliers together • Revenues are obtained through transaction fees and related services

  7. U.K. BUSINESS MODEL Person: gets into a bad accident Dismantlers Used Car Dealers Copart: Buys the vehicle from the insurance company and sells it to the buyers Insurance Company: purchases the totaled car and wants to sell it at the highest price Rebuilders Exporters • Copart purchases the vehicle and actively looks for buyers. • Revenues are obtained from the capital gains, but sustains all the transaction fees and devaluation risks.

  8. BUSINESS STRATEGY • Acquisitions • Development of new facilities • Increasing buyer base • Implementing value-added services for both buyers and suppliers

  9. ACQUISITION HISTORY - USD

  10. ACQUISITIONS HISTORY

  11. CURRENT AND ONGOING ACQUISITIONS • U.S. and Canada Acquisitions (till April 8th): • London, Ontario • Windsor, New Jersey • Walton, Kentucky • U.K. Acquisitions: • Simpson Bros. Salvage • AG Watson Auto Salvage & Motors Spares (2 yards) • With the closing of these transactions, Copart will operate 15 locations in the UK and 143 locations worldwide.

  12. COMPETITION • U.S. and Canada Competitors: • Vehicle auctioneers: • the ADESA Corporation • Auction Broadcasting Company • Insurance Auto Auctions, Inc. • Manheim Auctions • SADISCO • Dismantlers: • Greenleaf • LKQ Corporation • Trade Groups: • American Recycling Association • United Recyclers Group • U.K. • Principal competitors are privately held independent salvage companies

  13. RECENT EVENTS: • In October 2007, Copart announced a 20-million share increase in the company’s stock repurchase program, bringing the total number to 29 million shares. • March 6, 2008, Copart entered into a $200 million revolving line of credit with Bank of America.

  14. PART II: STOCK & PORTFOLIO • Current Holding • Last year Stock Performance • Current Portfolio fit • Correlation matrix

  15. RCMP Current Holdings Purchased 1,000 shares on February 28, 2003 at $7.82 per share Sold 300 shares on November 6, 2007 at $36.20 per share (overvaluation) Currently own 700 shares at $40.76 per share. For past five years Copart has appreciated over 420% at approximately 38% annualized gain.

  16. STOCK PERFORMANCE • Price increase from $37.10 to $41.30 • No dividend/split in last 52 weeks • Market Cap is 3.59B • P/E (ttm) is 25.91 • Diluted EPS (ttm) is 1.57 • Revenue (ttm) is 657.05M • Operating Margin (ttm) is 33.05% • Profit Margin (ttm) is 22.11% • Beta is 0.93, we changed to 1.300 • 52 week range: $27.42 -$43.27

  17. Current Portfolio fit

  18. Correlation Table:

  19. Part III: Valuation (DCF) • Business Analysis • Key Assumption • Model & Calculation

  20. Business Analysis-Revenue Growth Mode and Dependence Analysis Past five year compound Growth rate is 10.05%

  21. Gross P.P.E Historical Gross Mode Past Five year compound growth rate: 13.2%

  22. Revenue Break down-Seasonal Effect

  23. Revenue Break down- segment

  24. Intrinsic revenue growth rate calculation

  25. Key Assumption:

  26. DCF: CAPM & WACC calculation

  27. CAPM

  28. wacc Capital Structure:

  29. Intrinsic Value Calculation

  30. Sensitivity Analysis

  31. Part iv: Fairness opinion & Conclusion • Copart was a very healthy company but the overseas expansion has not been troublesome. • The fair value of Copart Common stock should be $21.49-$27.74 per share. • Today’s trading price is $41.45. The big difference is due to high speculative estimation about revenue increase rate, the company new aggressive stock repurchase program and uncertainty about oversea operations. Our recommendation: SELL 300 Shares at Market

  32. Q & A: • Any Questions ?

  33. Appendix: MACROECONOMIC EFFECTS- Oil • The increased oil price would negatively influence Copart profits: • Increased operating related costs(transportation, utility, etc.) • In the long run changes people driving habits (driving slow or using Bus)

  34. Appendix: Currency Effects • The decreased value of USD to Euro would increase Copart value : • Domestically, Copart as a exporter, foreign customers would feel cars relatively cheap and increase the volume of VB2. • In UK, since Copart as a principle, the currency effect is not material. (both buy side and sell side deal business using the same currency. )

  35. Appendix: Recession Effects

  36. Notice: Gross Profit Margin Decrease • the cost of purchased cars of $48.3 million • a charge of $0.6 million for the acceptance of fraudulent buyer credit card payments for cars sold on behalf of our suppliers,

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