copart, inc
Post on 31-Dec-2015
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Presentation Overview
Recommendation Company Overview Industry Overview Macroeconomic Overview Management’s Strategy for the Future Recent Company News and Financial
Results
Recommendation
Sell 200 shares at the market Keep on watch list Reconsider if the company issues
debt in the future Decreases overall cost of capital
Copart Overview
Founded in 1982 and headquartered in Fairfield, California
Operates in more than 140 facilities across the US, Canada, and the UK with 2500 employees
Provides remarketing services to process and sell vehicles over the Internet through its online auctions to vehicle suppliers - (similar to StubHub or eBay)
Services include online supplier access, salvage estimation services, end-of-life vehicle processing, virtual insured exchange, transportation services, vehicle inspection stations, on-demand reporting, and DMV processing
Offers CoPartfinder, an Internet-based used vehicle parts locator that provides vehicle dismantlers with resale opportunities for their salvage purchases
Copart Business Model
Accident totally destroys car
Insurance Co. deems car too costly to repair
Copart auctions car to buyers all around the globeand earns income from both parties
Dismantlers Exporters RebuildersUsed car dealers
SWOT AnalysisStrengths• Can acquire without issuing debt• Strong brand name as a public company• Large market share• Non-cyclical
Opportunities• Extensive supply of small competitors as buyout targets• Market domestically and globally is not saturated• Share repurchase program
Weaknesses• Does not hedge FX risk• Lack of experience operating outside of North America• Simple capital structure
Threats• Limited number of major vehicle sellers• Fuel and steel costs• Asset impairment risk UK
Industry Overview
Auto remarketing industry is relatively non-cyclical Slightly correlated with auto sales and with the
driving season Increased car purchases leads to an increase in
accidents Increase drivers on the road leads to an increase
in accidents Copart customers have increased purchases of
recycled parts to cut costs Potential of fuel prices rising back to summer 2008
highs Fewer drivers on the road will limit accidents,
which limit suppies for Copart
Macroeconomic Conditions
Some domestic macroeconomic indicators seeming to near a bottom
Unemployment rate continues to rise towards 10%
Commodity prices (fuel) remain depressed but stable
Equity markets experiencing a bear market rally
Credit markets beginning to thaw as LIBOR creeps lower
Management’s Strategy for the Future
Continue growth by acquisition Facilities Software
Further expansion throughout Canada and UK, and into continental Europe
Considering issuing long-term debt to finance continued growth and/or repurchase shares
Planning to continue share buyback program Repurchased 6.5 million shares in 2008 Repurchased 3 million shares in 2007
Recent Company News
12/5/08 - Former Governor of Missouri Matt Blunt joins Board of Directors
2/17/09 - Reaches settlement with Auto Auction Services concerning an anti-trust suit
2/09 - Adds facilities in Alabama and South Carolina
2/09 - Signed an agreement with uShip to feature uShip as a preferred transport solution for Copart's buyers
3/5/09 - Announced $.32/share earnings on a 2.1% decrease in revenue, predominately in the UK, and an asset impairment charge
Recent Financial Results
2009 Q2 Net Income – $65.5 million Net Profit Margin – 18% EBIT Margin – 29%
2008 Net Income – $156.9 million Net Profit Margin – 18.1% EBIT Margin – 30.3%
Correlation
CPRT AEE AEO DO FR JKHY KMB MCD SRCL WAG WFRCPRT 1AEE 0.0762 1AEO 0.1232 0.0722 1DO 0.237 0.2685 0.2337 1FR 0.1306 0.5116 0.0466 0.09342 1JKHY 0.4214 0.1139 0.1192 0.07586 0.2219 1KMB 0.1679 0.3298 0.0446 0.09803 0.3072 0.0889 1MCD 0.1159 0.3202 0.2327 0.21385 0.2016 0.3026 0.2989 1SRCL 0.1025 -0.014 0.1043 0.06171 0.1259 0.2524 0.1266 0.1455 1WAG 0.0323 0.1551 0.1156 -0.0118 0.137 0.1581 0.2332 0.2372 0.108 1WFR 0.1476 0.0759 0.2432 0.37791 0.0711 0.0909 -0.135 0.0908 0.1426 -0.014 1
Competitors
Auto Dealers Exchange Services of America Offers used- and salvage-vehicle redistribution services to
automakers, lessors, and dealers in the US, Canada, and Mexico. ADESA operates about 60 used-vehicle auctions and more than 40 salvage auctions
Insurance Auto Auctions, Inc. Leading US auto salvage company that auctions off cars declared
a total loss for insurance purposes; it auctions either whole vehicles or, if they can't be fixed, just the parts. IAA has about 150 auction sites throughout North America
Manheim remarkets vehicles for wholesale consignors, including car dealers
and makers, rental-car and fleet companies, and financial institutions. The company offers auction-related services, as well, such as reconditioning, wholesale inspections and certifications, and used car valuation
Comparables
Company Ticker Market Cap Trailing P/E Forward P/E Price/Sales Price/Book
COPART CPRT 2.53B 17.23 15.24 3.20 3.08
Carmax Inc. KMX 2.50B 41.23 22.63 0.36 1.56Ebay EBAY 18.37B 10.56 9.42 2.16 1.66AutoNation AN 2.78B N/A 16.90 0.20 1.26
Projections
Valuation is extremely dependent on growth rate
Copart will see higher volume Revenues will depend on the price of steel
50% of UK revenues have been related to the value of the selling price
Selling price is dependent on the price of steel
Margins will decline due to a higher % of business in the UK Copart, Inc. acts as a principal in the UK
Projections
Growth depends on: Acquisitions
Entered UK market in June 2007 Volume changes in the salvage car
market Growth in market share Fees dependent car selling prices Growth in non-insurance company
sellers
Projections
Higher Volume = More Fee Revenue More cars are declared totaled because
difference between value before accident and value after accident widens
Lower used-car pricing Auto manufacturers providing more
features in cars
Assumptions
0.00%100.00%
0.00%12.31%
1.01
4.00%
10.00%6.00%
37.00%12.31%
4.00%
β (Beta)Cost of EquityCost of DebtWeight of Equity
Tax RateWACCSustainable Growth
Weighted-Average Cost of CapitalWeight of Debt
Market Risk Premium (RPm)
Market Return (Rm)
Risk-Free Rate (Rf)
Valuation
CAPM DCF Valuation: $26.87 ROE DCF Valuation: $15.56 “Goal Post Valuation”: $19.70 Comparables Valuation: Current Price: 30.18
RCMP Historical Transactions
FEB 2003: Bought 1000 shares at $7.82 NOV 2007: Sold 300 shares at $36.20 APR 2008: Sold 300 shares at $41.30 SEP 2008: Sold 200 shares at $41.05 Current Holdings: 200 shares at $30.18
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