WTEC Research Note

Warrantec Corp (WTEC)
By: Richard W. West, CFA

Warrantech announced today that it had reached an agreement with Automotive Investment Group to provide marketing services for reinsurance programs for large automobile dealerships. Under the contract, Warrantech Automotive will immediately begin marketing the new reinsurance program to large automobile dealerships. Automotive Investment is a nationally recognized provider of automobile reinsurance programs. These programs will be insurance through Heritage Insurance Risk Retention group and reinsured by American Re, an A rated carrier. Warrantech stated that based on the current business volume, this program could add twenty-five to thirty per cent in new business volume for Warrantech Automotive.

VALUATION AND RECOMMENDATION: YEAR-END TAX SELLING PRESSURE OVER --STOCK REMAINS UNDERVALUED AND IS AT A COMPELLING LEVEL FOR PURCHASE

Since our last Research Note on December 11, 2001, the price of Warrantech's commons stock eased off on relatively low average daily volume of less than 17,000 shares. At present levels, the market capitalization of Warrantech is approximately $8.3 million and the stock is selling at 21% of revenues. At these levels the stock is trading at a price earnings ratio of 4.5 based on our estimates of $0.12 for the year ended March 31, 2002, and based on our estimated earnings of $0.23 for the FY 3/31/03 the stock is trading at a 2.3 P/E ratio.

We attribute this low valuation to the year-end tax selling and the fact that the stock is traded on the NASDAQ Bulletin Board. At these levels, we believe the common stock of Warrantech is a compelling buy and offers investors an excellent speculative opportunity for long-term capital appreciation with moderate downside risk. We reiterate our Strong Speculative Buy on Warrantech Corporation and maintain our price target of $1.75 for a twelve to eighteen month timeframe.

J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 801 S. Figueroa, Suite 1120, Los Angeles, CA 90017 Phone (213) 929-2616, Fax (213) 896 0457 Email: [email protected] Web site: www.JMDutton.com

Information, opinions or recommendations contained in this research note are submitted solely for advisory and information purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Such information and the opinions expressed are subject to change without notice. This research note is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. Neither the Firm, its principals, nor the assigned analysts own or trade shares of any company covered. The Firm does not accept any equity compensation. Anyone may enroll a company for research coverage, which costs US $22,000 prepaid for one-year. Reports are performed on behalf of the public, and are not a service to any company. The analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests and insure independence. Please read full disclosure and other reports and notes on the Company at www.JMDutton.com.