1. Fundamental Analysis of Copart Inc. Nov. 06 2007 By Zhifeng Chen, Chris Ehley, Eric Nichols and Xiaoting Yang

2. Outline  Company Background  Overview  Industry summary  Business, strategy  Competition  Issues, potential risk  Recent major acquisition & related issues.  Stock & Portfolio  Recent performance  Portfolio positioning  Correlation matrix  Valuation  Key assumption  Model & calculation  Conclusion & Recommendation

3. Copart – The Business Simplified Insurance company sends a claims adjustor. Claim adjustor decides repairs will cost more than cash value of car pre- accident. Car still has value though! Insurance company writes the bad driver a check, and now owns a totaled vehicle. Bad driver gets into an accident Insurance companies are notoriously greedy, and want maximum value from totaled car Copart steps in. They facilitate the selling of the car to a buyer, in this case most likely a vehicle dismantler. All the while, they store and “maintain” the vehicle Car gets towed to a local salvage yard. Vehicle is sold via the internet using (VB2) technology. Copart hands a check over to insurance company. Copart keeps a % of the sale of the car

4. Value Added  Maximum value for vehicle  Established extensive network of buyers and storage facilities (more available buyers = higher price)  Storage of vehicles  Insurance companies are financial machines and do not want to deal with tangible assets  Offering of peripheral services  Small services (sprinkles on the ice cream)  CoPartfinder, On Demand Reporting, DMV eprocessing

5. Overview  Primary business: Provides salvage vehicle supplier full remarketing service to sell their vehicles primarily through its online auction platform (VB2).  Two business models: agent (US) and principal (UK)  Principle business growth strategy: acquisition of new vehicle storage facility national-wide and overseas (UK)  Recent major operations:  In 2004, converted all remarketing facility to VB2 platform  In 2006, formally discontinued its public auction business, Motors Auction Group  In 2007, acquired Universal Salvage plc (UK)  Critical factors affecting its business:  Competition  The ability to establish new facility  The success to expand its VB2 platform usage  Large abnormal weather condition ( such as hurricane Katrina in 2006)

6. Salvage Vehicle Remarketing Service Industry  It provides a channel for salvage vehicle suppliers to liquidate their total loss vehicles  Insurance companies are the primary source of salvage vehicle  Major factors affecting supplier’s decision on choosing salvage vehicle sales company:  Net return from salvage vehicle  Level of services provided by sales company  National coverage/response and the ability to generate custom seller report  Vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters are the primary buyers  The development of costly and easily wrecked auto features will increase the supply of total loss vehicles in the future

7. Copart’s Service Offerings  Online supplier access  Salvage estimation  Virtual insured exchange (VIX)  Fast response transportation services  Vehicle inspection  On-demanding report  DMV processing  Flexible vehicle processing program  Percentage Incentive Program (PIP), Consignment Program or Purchase Program.  Buyer network  Unique sales process  CoPartfinder

8. Business Growth Strategy  Acquiring new storage facility in key markets  123 facilities in US, 1 in Canada and 7 in UK as of July 31, 2007  Acquired 16 facilities and established 14 new facilities since fiscal 2005  Pursuing new national/regional supply agreement  Expanding new value-added remarketing services  Implementing VB2 platform

9. Competition  Large national/regional vehicle auctioneer: direct competition  ADESA Corporation; Auction Broadcasting Company; Insurance Auto Auctions, Inc.; Manheim Auctions and SADISCO  Large national vehicle dismantler and trade groups of dismantlers : purchasing directly from insurance company thus bypassing sales company, including Copart.  Greenleaf and LKQ Corporation; American Recycling Association; the United Recyclers Group  Competitor’s advantage:  Established relationship with supplier and buyers  Greater financial resources

10. Copart’s Competitive Advantage  National coverage/response  Operates in nearly every state in the US (http://copart.com/qfaclty.htm)http://copart.com/qfaclty.htm  In state buyers accounted for 50.8% of total vehicles sold (25.1% of salvage vehicles were sold to out of state buyers and 25.7% were sold to out of country buyers, based on registration)  Full remarketing service including a number of value-added services  Proven ability to acquire and integrate acquisitions  Strong information technology support

11. Issues That May Affect Copart’s Business  Environmental matters (contamination and disposal concern)  Spills of fuel, motor oils and other fluids  Petroleum products and other hazardous materials  Waste materials such as solvents or used oils  Governmental regulations  Legal proceedings  Involved in several litigation and damage claims regarding injuries, property damage, and handling or disposal of vehicles  Oil prices  Significant increases in oil may correlate to less driving and less accidents  Loss of major suppliers  Technology risks  No prior knowledge of foreign markets

12. New acquisition in UK  On June 14, 2007, acquired Universal Salvage plc, which operates 7 yards in UK – $120 mil  On August 1, 2007, acquired Century Salvage Sales Limited, which operates 3 yards in UK - $9 mil  Operates as a principal, instead of an agent in US  lower profit margin  Other concerns  Tax level  Currency risk  Culture

13. U.S. vs U.K  Agent relationship  Less risk  Higher margins?  Greater market risk?  Principle relationship  Higher, unknown risk  Unknown margins  Balance sheet considerations  Guaranteed market (government)

14. Currency Risk  British Pound has appreciated against the dollar, the weakening US economy may perpetuate this trend  Good for Copart. International business as it increases the real value of income  Neutral for Universal Salvage, as there is no indication of exports/imports 0.53 0.4 8

15. Stock Performance (last year)  Price raised from $28.75 to 37.13  No dividend/split in last 52 weeks Market Cap is 3.28B P/E (ttm) is 25.45 Diluted EPS (ttm) is 1.46 Revenue (ttm) is 560.68M Operating Margin (ttm) is 36.23% Profit Margin (ttm) is 24.32% Beta is 2.36 52 week range: $27.36 -38.58

16. Stock Performance (in portfolio)  RCMP Portfolio History  Purchased at $7.82/share for 1,000 shares on Feb 28, 2003 (total $7,820)  Current price $37.13, market value $37,130.00 (374.81% gain over 3 years)  Portfolio composition :

17. Correlation Matrix

18. Valuation Estimate future cash flow from current balance sheet, income statement and business growth activity  Assumptions  Calculate WACC  Beta assumption a bit arbitrary  We feel Copart as a business is pretty defensive in terms of its offering  The financial beta ( cov(cprt,mkt)/market variance) is very large – unrealistically large  Published betas > 2  Decided to use a beta that addresses the underlying risk of the company: 1.2<Beta<1.5  Estimate firm value by using DCF  Intrinsic value per share  Sensitivity analysis

19. Assumptions  Cost per opening/acquiring a single yard: 2500 – 5000  CAPEX per Yard per Year: 500 to 800 (CAPEX tends to be more volatile than such)  Yard Openings: Declining numbers with increasing cost  Revenues Per Yard –  Dependent on overall Growth Assumption  Matching past revenue growth (15 to 18%), and maintaining a reasonable revenue per yard results in excessive Acquisition cost (8 Yards Per Year) driving future FCF down  Inventory (New Line item due to UK acquisition, is at normal level?, 6 million) and will it grow proportionately with the business (5%)?  We kept Margins at historic levels and above, although we believe the UK acquisitions will have a dampening effect  With being very liberal with growth numbers, and margin numbers still results in a current over valued market price $ amount in (000’s)

20. Assumptions Cont.  Synergies –Expansion into European market (25% of buyers out of country)  This would look like: growth rates above historic numbers(20%) with historic acquisition numbers(4 – 5 per year)  We believe this what current consensus is  We believe this is unrealistic (transportation costs restrictive)  However, with these assumptions current stock price is reasonable (fair price)

21. Free Cash Flow Projection

22. WACC Calculation

23. Present Value of Total Cash Flow

24. Intrinsic Value Per Share

25. Sensitivity Analysis Sustainable Growth $ 30.612.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0% 8% $ 44.15 $ 47.98 $ 52.67 $ 58.53 $ 66.06 $ 76.11 $ 90.17 $ 111.26 W9% $ 36.66 $ 39.24 $ 42.29 $ 45.95 $ 50.43 $ 56.02 $ 63.22 $ 72.81 A10% $ 31.20 $ 33.03 $ 35.15 $ 37.61 $ 40.53 $ 44.03 $ 48.30 $ 53.65 C11% $ 27.06 $ 28.41 $ 29.94 $ 31.69 $ 33.71 $ 36.07 $ 38.86 $ 42.20 C12% $ 23.81 $ 24.84 $ 25.99 $ 27.28 $ 28.75 $ 30.42 $ 32.35 $ 34.61 13% $ 21.20 $ 22.00 $ 22.89 $ 23.87 $ 24.97 $ 26.21 $ 27.61 $ 29.21 14% $ 19.07 $ 19.70 $ 20.40 $ 21.17 $ 22.01 $ 22.96 $ 24.01 $ 25.19 15% $ 17.29 $ 17.80 $ 18.36 $ 18.97 $ 19.64 $ 20.37 $ 21.18 $ 22.08 16% $ 15.79 $ 16.21 $ 16.66 $ 17.15 $ 17.69 $ 18.27 $ 18.91 $ 19.61

26. Model  Go through different scenarios  High growth, with Large Number of Acquisitions  High growth, with Few Acquisitions  Normal Growth, Historic Acquisitions

27. Conclusion  Copart is a healthy growing company, but current market conditions have overvalued its equity  Its intrinsic value per share is estimated to be $28 - 30  Today’s trading price is $37.14  Our recommendation: SELL 300 Shares at Market

28. Sources  Copart SEC filings  http://www.finance.yahoo.com http://www.finance.yahoo.com  End-of-Life Vehicle Directive, PriceWaterhouseCoopers