WTEC Research Note

Warrantech Corporation (WTEC)
By: Richard W. West, CFA

WARRANTECH EXPANDS PRESENCE IN CANADA
CANADIAN SUBSIDIARY SIGNS THREE MEANINGFUL CONTRACTS

DOMESTIC CUSTOMER BASE INCREASED WITH SIGNING OF WHEREHOUSE ENTERTAINMENT

SPECULATIVE BUY RECOMMENDATION REITERATED

Warrantech's Canadian subsidiary, RepairMaster Canada signed two major contracts in the last two months.

On March 28, 2002, RepairMaster Canada announced that it had signed an agreement with AWC Communications, a cellular phone retailer based in Lethbridge, Alberta. AWC, who has eight retail locations in Calgary, Lethbridge and Taber, will market RepairMaster Canada's XchangeCard product replacement program to its cellular phone customer base, AWC sells about 8,000 handsets annually in Canada.
On June 6, 2002, RepairMaster Canada signed a three-year agreement with Visions, one of the largest electronic retailers in Western Canada. RepairMaster Canada will provide Visions with professional marketing services through Warrantech Direct. Warrantech Direct will use direct mail and telemarketing campaigns to reach Visions' customer base to offer service contracts, product replacement and renewal coverage on Visions' customer base who created consumer electronic sales in excess of $113 million ($170 million Canadian.
On June 11, 2002, RepairMaster Canada signed a three-year agreement with Audio Warehouse who in Warrantech's words is "the most established electronics retailer in the Province of Saskatchewan, Canada." Under the terms of the agreement, Warrantech Direct will utilize telemarketing and direct mail campaigns to contact Audio Warehouse customers to offer service contracts, product replacement and renewal coverage on consumer electronics purchased by Audio Warehouse customers. Audio Warehouse has a customer base worth more than $20 million ($30 million Canadian).

Domestically, On April 9, 2002, Warrantech signed a three-year agreement with Wherehouse Entertainment, Inc. one of the largest retailers of prerecorded music, video and consumer electronics in the United States. Wherehouse, who has 400 niche-oriented specialty retail stores in 24 states, has begun to sell Warrantech's Xchange Card Program through its recently introduced Digital Wherehouse concept that is a store-within-a-store offering digital electronic equipment.

Warrantech has signed seven new agreements covering electronic retailers in Canada, Peru and the United States since the first of this year. We expect increased revenues from these contracts in the year ended March 31, 2003. The additional revenues from these contracts added to the growth in revenues from its existing customers validate our estimates of $42.2 million in revenues and earnings per share of $0.29 for the current fiscal year vis-à-vis our estimates of $36.2 million of revenues and $0.11 earnings per share for the year ended March 31, 2002.

SUMMARY:

Based on these estimates and the current price of $0.63 a share, the stock is now trading at a 5.7 price earnings ratio for the year ended 3/31/02 and 2.2 price earnings ratio for year ended 3/31/03. We are cognizant of the drawbacks of the general market weakness and Warrantech's listing on the Bulletin Board, however, we can not state strongly enough that we believe that at current levels Warrantech is a compelling BUY that offers investors an excellent opportunity for long-term capital appreciation with minimum downside risk. We reiterate our Strong Speculative Buy on Warrantech Corporation and out price target of $1.75 for a twelve to eighteen-month timeframe.

J.M. Dutton& Associates, LLC. John M. Dutton, President and Supervisory Analyst, 1129 Manning Drive, Suite 310, El Dorado Hills, CA 95762 Phone (916) 941-4985, Fax (978) 418-6422 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.