Post on 25-Jun-2020
transcript
November 20th & 21st, 2014
Students: Rajeev Chanderraj, Frances Fan, Zane Keller
Recommendation
Long Copart (CPRT), Short Tableau (DATA)
Long: Copart (CPRT) Short: Tableau (DATA)
Share information Market Cap: $4.3 billion Float: 90% Current price: $34.18 Valuation Net debt: $144mn P/E and EV/NOPAT: 25x Recommendation Intrinsic value: $40-43 (excl. real estate) Margin of safety: 15-25% (excl. real estate)
“Turning crashes into cash” “Big Data meets big float”
Share information Market Cap: $5.8 billion Float: 57% (including both share classes) Current price: $84.83 Valuation Net cash: $644mn EV/Sales: 16x EV/EBITDA: 516x Recommendation Intrinsic value: $30-35 Downside potential: 60-65%
Company Overview – Copart (CPRT)
…
Turning crashes into cash
Copart is the #1 online marketplace in the U.S. for salvaged vehicles 80% of unit volume is salvaged autos: “An eBay for wrecked cars” Top 3 player in Canada (20% of revenue), recently entered Europe and Brazil
Industry dynamics – what are the primary drivers of vehicle remarketing?
Vehicle miles driven: increased 2.3% per annum from 1971-2013 Weather: bad weather is good, hurricanes are great Cost of auto repair and salvage value: both are increasing
A winner-takes-most, duopolistic market: sellers attract buyers, and vice versa
Sellers Insurers
Lenders
Car dealers
Buyers Recyclers
Dismantlers
Rebuilders
Source: U.S. Department of Transportation (vehicle miles driven)
Copart Investment Theses
Scalable, asset-light business
model
Hidden real estate value
We estimate that Copart has $2-5 per share in hidden real estate value The board recently considered converting to a REIT However, we do not include this extra value in our valuation
Defensive business
model
1
Copart’s asset-light business model is scalable and leads to high returns 15 year return figures: 15% ROA, 21% ROIC, 19% ROE Shares have returned 17% p.a. since CPRT’s IPO Copart is now expanding its business to Europe and South America
Copart is insensitive to economic cycles and possess a wide moat A strong network business: sellers attract buyers, and vice versa Revenue depends upon car crashes; insensitive to macro conditions Additionally, the company benefits from natural disasters
2
3
Scalable, Asset-light Business Model 1
Copart transformed the industry by developing an online marketplace model Copart rarely buys cars; its primary asset is car lots 80% of revenue is derived from transaction fees
Transaction fees float with vehicle value – an inflation hedge Similar to an exchange; requires minimal to no capital
Copart is horizontally expanding into similar product types
RVs, boats, ATVs, construction equipment, jets skis
The company is now growing internationally, temporarily depressing earnings Opened facilities in Germany and Spain in 2013 Opened Dubai location in 2012 Acquired 5 locations in Brazil in 2013
Copart is expanding this model horizontally and geographically
CPRT’s inflation-hedged model is well suited for
emerging markets
Most of Copart’s lots were purchased in the 1980s – mid 2000s Some of these lots have appreciated significantly We estimate the company has $2-5 per share in hidden real estate value
How can Copart realize this hidden value?
1) REIT conversion: considered by Copart’s board in 2013, but legally difficult 2) Sale leaseback: a good option for most lots 3) Sell high-value lots and lease more remote lots
Hidden Value in Real Estate 2
Copart has meaningful, unrecognized value in its real estate
Undervalued Real Estate: Las Vegas, NV
A 29 acre lot in NE Las Vegas: at purchase (1999)
Source: Google Earth
Undervalued Real Estate: Las Vegas, NV
A 29 acre lot in NE Las Vegas: today (2014)
Source: Google Earth
Undervalued Real Estate: Rancho Cucamonga, CA
A 39 acre lot near Los Angeles: at purchase (1999)
Source: Google Earth
Undervalued Real Estate: Rancho Cucamonga, CA
A 39 acre lot near Los Angeles: today (May 2014)
Source: Google Earth
Copart’s Undervalued Real Estate: Van Nuys, CA
Surrounded by multifamily and SFH; adjacent to mass transit
Source: Google Earth
Valuing Copart’s Real Estate
1) Establish market value via highest-and-best use analysis Potential uses: industrial, office, retail, multifamily, single family Valuation established by recent land sales comps on $/acre basis
2) Estimate cost to lease a comparable property and capitalize at 10x
Lease comps based upon market rate industrial leases within 10 miles Lease costs may actually be lower if search radius is expanded
3) Calculate valuation gain from sale then leaseback An imperfect, though insightful, process
Our analysis is limited by zoning and other issues We examined <15 of Copart’s 150+ properties Analysis excludes CPRT’s international holdings
We revalue Copart’s real estate using a 3-step process
Hidden real estate value is “icing on the cake” – not
included – in our valuation
Defensive Business Model 3
Copart: a hedge against the economy and weather
Macro Weather
Strong performance in recessions:
Revenue growth: 34% in ’01 and 40% in ’08
Profit growth: 45% in ‘01 and 15% in ’08
Benefits from bad weather:
Revenue growth: 34% in ’01 and 40% in ’08
Profit growth: 45% in ‘01 and 15% in ’08
“We’re running at full speed. Sales of these vehicles will be very high. Hurricane
Katrina…I’ve never seen a storm like this in my life. That’s where Copart shines.” – Jayson Adair, President, Copart, Fiscal 1Q13 earnings call
Investment Catalysts
Management’s willingness to return capital is key
1) Imminent capital return Since ‘08, CPRT has repurchased 30% of its outstanding shares Historically, CPRT returns significant capital when it becomes unlevered
2) Increasing alignment with shareholders
In ‘13, CPRT’s President and CEO opted to be paid via options (strike = $36) Management and directors own 19% of shares outstanding, excl. options
3) Capturing value of real estate
In 2013, Copart considered converting to a REIT
$11mm $9mm $90mm
$269mm
$13mm
$740mm
$203mm
$15mm $1mm 0%
2%
4%
6%
8%
10%
12%
14%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% o
f S
hare
s
Ou
tsta
nd
ing
Share Repurchase Activity (including tender offers)
$10mm
Copart Valuation: DCF Methodology
Key assumptions WACC: 7.2% (Ke = 7.8%, Kd = 3.7% post tax)
Capital structure: 85% equity Terminal growth in 2019: 3% FCF exit multiple: 25x
$43 intrinsic value using a DCF valuation methodology
Copart Valuation: Multiples Methodology
$38-42 intrinsic value using EV/NOPAT and P/E multiples
Key assumptions Terminal growth in 2015: 4% WACC: 7.2% 2015e ROIC: 19%, 2015e ROE: 22%
Tableau Software is a business intelligence (BI) solutions provider ~80% of revenue comes from license, ~20% maintenance and services Company targets SMEs, rather than large enterprises, using a “land and expand” strategy
This makes customer acquisition costs much higher
Industry dynamics Market size: BI market reached $14bn in 2013, expected to grow 9% from 2013-2017
Despite rapid growth, Tableau has <1% market share
Highly competitive market Data Visualization competitors: Qlik, Tibco
Spotfire, Microstrategy, etc. Traditional large vendors: IBM, Oracle,
Microsoft, SAP, SAS, etc.
IBM
TDC
MSFT
Live Query Engine
In-memory Data Engine
VizQL Compiler
Drag & Drop User Interface
Access the data Analyze the data Share results
Sources: Macquarie Capital (USA), RBC Capital Markets
How Tableau’s Product Works
Company Overview – Tableau (DATA)
Big data, big float
DATA’s competitors are high-powered and very well funded
Short Tableau (DATA)
“Big Data” meets big float
The Looming Wave of Class
A Shares
A Broken, but Repairable,
Business Model
Tableau’s business model faces two main challenges: Reliant upon high upfront license fees instead of a SaaS model License fee growth has slowed, but expense growth has not Tableau’s product is relatively undifferentiated
Valuation Matters
1
Tableau’s free float may increase by up to 25% in ’15, potential selling from: 4.8mn exercisable employee options 3.2mn Class B share held by NEA to convert to Class A 1.6mn Class A share held by Meritech to float to the market Stock came under pressure in March due to insider selling
2
3
Tableau’s valuation is extreme Current valuation assumes profit will double for 7-8 years EV/Sales: 16x, EV/EBITDA: 516x
The Looming Wave of Class A Shares
Tableau’s free float may increase by up to 25% in ‘15
What are the Class B shares? Held by executives, directors
and NEA 10:1 voting power (85% of total) 1:1 conversion to Class A
Who are the VC funds in the deal? 1) NEA Fund 11 (‘04 vintage)
Owns 3.2mn of B shares Invested in ’04 Raising a $2.6bn new fund
2) Meritech Fund V (‘05 vintage)
Owns 1.5mn A shares
69.3mn 100%
44.6mn 64.4%
24.7mn 35.6%
Total shares outstanding
Class A Class B
1.6mn
3.2mn
4.8mn Meritech
NEA
Employee options
Employee exercisable options
24.4%
100%
Potential float Current total float
9.6mn
39.3mn
1
Major VC shareholders are likely to exit Tableau soon
Tableau’s VC backers are likely to exit soon
The Looming Wave of Class A Shares
Tableau’s stock also came under pressure in March due to insider selling
Source: Factset
-10%
10%
30%
50%
70%
90%
DATA Russell 3000 Growth
IPO at $31, 9.4mn shares (3.2mn by insiders)
5/15/13
Follow-on at $65, 7.7mn shares (all insiders)
11/7/13
NEA distributes 4.8mn shares to its LPs
2/26 & 3/4, 2014
Follow-on at $89, 4mn shares
3/20/14
1
Tableau relies upon upfront, one-time license fees Perpetual license fees make up 80% of revenue However, fee growth has declined from 111% p.a. in ‘12 to 58% in ‘14 While SG&A is increasing as a percent of revenue
A Broken, but Repairable, Business Model 2
Tableau must switch to a SaaS model; this will be disruptive
Meanwhile, Tableau’s market share remains < 1%
Competitors’ Product Offerings
Tableau’s product is relatively undifferentiated
Valuation Matters
Tableau’s valuation implies unrealistic expectations
Source: Factset, Macquaire Capital (USA)
Tableau’s valuation is extreme EV/Sales: 16x, EV/EBITDA: > 516x What growth does this imply?
0% 10% 20% 30% 40% 50% 60% 70%
0x
5x
10x
15x
20x
25x
30x
FY 1
4E
EV/R
even
ue
FY14E revenue growth
What does the sell-side have to say about Tableau? “Big Data Rocket” – FBN Securities, Sept. 2013
“Elite of the Elite” – UBS, Feb. 2014
“The Oil of the 21st Century” – JMP, June 2013
“The LeBron of Software” – RBC, May 2014
18 buys, 8 holds, no sells
Can Tableau meet these lofty
expectations?
Assuming Tableau deserves a 25-45x terminal P/E…
Tableau must double earnings every year, for the next 7-8 years
3
Tableau Comparables
DATA is priced well above its peers
SAP 22%
Oracle 15%
IBM 12%
SAS 12%
Microsoft 9%
Qlik 3%
Tibco 1%
Tableau 1%
Others 25%
Business Intelligence Market Share
Sources: Macquarie Capital (USA), RBC Capital Markets
…especially relative to market share Qlik and Microstrategy have ~6% market share Tableau has <1% market share
However, Tableau’s market cap is higher than
both Qlik and Microstrategy combined
Tableau Valuation: Multiples Methodology
$30-35 intrinsic value using EV/Sales multiple
Key assumption EV to Sales: 4.0 – 5.0x
Tableau Valuation Using Multiples (all figures $ million unless otherwise stated)
EV/Sales Methodology
LTM Sales 351
Fair EV/Sales multiple 5.0x
Intrinsic enterprise value 1,756
Plus: cash 645
Intrinsic equity value 2,400
Diluted shares outstanding (mn) 69
Intrinsic value per share $34.80
Recommendation
Long Copart (CPRT), Short Tableau (DATA)
LONG CPRT
Investment theses 1) Looming wave of Class A shares 2) Broken business model 3) Valuation matters
Catalysts • Big pressure from insider selling
SHORT DATA
Investment theses 1) Scalable, asset-light business model 2) Hidden real estate value 3) Defensive business model Catalysts • Imminent capital return • Increasing alignment with shareholders • Capturing value of real estate
Intrinsic value: $40-43 (excl. real estate)
Margin of safety: 15-25% (excl. real estate) Intrinsic value: $30-35 Downside potential: 60-65%
Long: Copart (CPRT) Short: Tableau (DATA)
Appendix Copart (NASDAQ: CPRT)
Valuation History
Source: FactSet. Data from 9/30/94 to 11/13/14
Copart valuation history from 1996 to present
Earnings-based multiples: 25x P/E, 15x EV/EBIT Cash-flow multiple: 19x P/CF Book-based multiple: 3.6x P/B
Real Estate Valuation Walkthrough
Rancho Cucamonga, CA
1) Establish market value Identify and vet appropriate comps in area
2) Establish lease cost Identify potential industrial leases in <10 miles
For the Van Nuys property: Best and highest use is retail at $575k / acre Industrial is also compelling at $550k / acre Re-lease cost is $40k / acre, or $26k after tax
Real Estate Valuation Walkthrough, Part Two
Rancho Cucamonga, CA
3) Calculate gain from sale leaseback Land has a market value of $24mn Capitalized lease expense of ($11mn) Net gain from transaction of $13mn
Summary of Real Estate Analysis
CPRT: Financial Summary
CPRT: Income Statement
CPRT: Balance Sheet
CPRT: Cash Flow Statement
CPRT WACC Assumptions
CPRT Valuation Sensitivity Analysis
Copart’s Long History of Value Creation
17% compounded annual return since inception
Source: Bloomberg. Total return data from date of Copart public offering (3/18/94) through 11/12/14
Copart’s Investors
Source: Bloomberg as of 11/13/14
Management and directors own 19% of shares outstanding
CPRT: Bloomberg EV Summary
Appendix Tableau (NASDAQ: DATA)
DATA: Income Statement
Tableau Income Statement (all figures in $ million unless otherwise noted)
Fiscal year ended December 31 2010 2011 2012 2013 9/2014 LTM
License revenues 24 44 90 160 237
Annual growth 83% 102% 78% 48%
Maintenance and services 10 18 38 73 115
Annual growth 81% 111% 92% 58%
Total revenue 34 62 128 232 351
License cost of revenues 0 0 0 1 1
As % of license revenues 0% 0% 0% 0% 0%
Maintenance and services cost of revenues 1 3 10 18 31
As % of M&S revenues 13% 16% 27% 25% 27%
Sales and marketing 16 30 62 124 188
As % of total revenue 48% 49% 49% 53% 54%
Research and development 10 18 33 61 95
As % of total revenue 28% 29% 26% 26% 27%
G&A 4 7 18 26 37
As % of total revenue 11% 11% 14% 11% 10%
Operating expenses 31 58 123 229 352
EBIT 3 4 4 4 (1)
EBIT margin 8% 6% 3% 2% 0%
Other income (loss) 0 (0) (0) (1) (1)
Profit before tax 3 4 4 3 (1)
Income tax expense (benefit) 0 1 3 (4) 2
Effective tax rate 4% 13% 66% -147% -197%
Net income 3 3 1 7 (4)
Shares outstanding 38 39 40 59 69
EPS 0.07 0.09 0.04 0.12 -0.05
DATA: Balance Sheet
Tableau Balance Sheet (all figures in $ million unless otherwise noted)
12/31/2011 12/31/2012 12/31/2013 9/30/2014
Cash & equivalents 30 39 253 645
Accounts receivable 13 31 61 67
Prepaid expenses and other current assets 1 3 7 9
Income taxes receivable 0 1 2 2
Deferred income taxes 1 2 9 9
Total current assets 45 76 332 733
PP&E 6 10 21 39
Deferred income taxes 0 0 1 1
Deposits and other assets 0 0 1 2
Total assets 51 87 355 774
Accounts payable 1 2 2 5
Accrued compensation and employee related benefits 2 4 27 27
Accrued liabilities 7 13 8 14
Income taxes payable 0 0 0 0
Deferred revenue 18 32 66 93
Total current liabilities 28 52 104 140
Deferred income taxes 1 1 - -
Deferred revenue 1 2 3 7
Other long-term liabilities 1 1 3 5
Total liabilities 32 57 110 152
Prefererred stock 20 20 0 0
Common equity (deficit) (0) 10 245 622
Total equity 20 30 245 622
Total liabilities & equity 51 67 355 774
Summary statistics:
Net cash 30 39 253 645
Shares outstanding (mn) 39 40 59 69
BVPS -$0.01 $0.25 $4.14 $9.02
Net cash / total assets 59% 59% 71% 83%
Net working capital (26) (46) (86) (119)
Capital employed (7) (4) (2) (11)
Industry Size Estimates
Source: Gartner’s estimate for the total BI opportunity, “Market Share Analysis: Business Intelligence, Analytics and Performance Management, 2012”, by Dan Sommer and Bhavish Sood, May 7, 2013, and “Forecast: Enterprise Software Markets, Worldwide, 2012-2017, 3Q13 Update”, by Laurie Wurster, et al, September 16, 2013, IDC, Forrester Research, RBC Capital Markets
Lack of clear advantage over competitors
Tableau 8 vs. Qlikview 11 vs. Spotfire 5
• Performance – Since Tableau’s roots are in solutions for the desktop analyst, they’re very immature at an Enterprise level.
• SQL – Tableau has some very basic support for database joins and in-memory joins, but you practically need to give them your dataset pre-structured for consumption.
• Object Management - Tableau doesn’t have objects in the way MicroStrategy does and doesn’t really have a concept of Dev and Production
Source: “Data to the People: tb8.1 vs qv11.2 vs sf5.5”, http://apandre.wordpress.com/2013/09/13/tableau-8-1-vs-qlikview-11-2-vs-spotfire-5-5/
• Visualization – The visualization capabilities of Tableau are diverse and highly insightful. Features such as “word clouds” or “bubble maps” are great tools to enhance comprehension
• Community - Based on training videos, blog/forum posts, and twitter buzz – Tableau leads the community building effort
Feature Tableau 8 Qlikview 11 Spotfire 5
Enterprise ready good since 8.1 good for SMB excellent
Long-term Viability 1 product 1 product yes
Mindshare excellent good average
"Big Data" support good since 8.1 average excellent
Server in a cloud (Saas fee per year) $500/100GB None $4500/500MB
Free offline viewer Tableau Reader None Ent. Player for fee
Mac version 8.2 None None
Implementation fast above average average
Visual Drilldown good excellent good
Mapping best average good
Development weak good best
Modeling, Analytics weak weak Excellent
Integration with R 8.1 none best
60-bit 8.1 best good
Virtual Memory yes slow good
Storytelling new UI/8.2 manual manual
Multidimensional Cubes Good None average
Best among the three Worst among the three
Tableau’s Class B Investors
NEA maintains significant stake 18 months post-IPO
DATA remaining Class B shareholders
As of November 14, 2014
Holder Position Remaining shares Date
Pat Hanrahan Chief Scientist and co-founder 8,088,278 11/13/2014
Christian Chabot CEO and co-founder 6,394,000 11/10/2014
Chris Stolte Chief Development Officer and co-founder 5,865,875 11/10/2014
New Enterprise Associates LLC n.a. 3,224,128 8/20/2014
Elissa Fink Chief Marketing Officer 300,675 8/29/2014
Kelly Wright Executive VP, Sales 70,000 8/22/2014
Brooke Seawell Venture Partner, NEA 10,000 11/10/2014
Source: SEC Form 4 filings
Tableau’s Class A Investors
Meritech remains a top holder of Class A shares
DATA: Bloomberg EV Summary