Auctioneer Gets "Stamp" of Approval

12/26/2003 12:00 am EST

Focus:

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

"While we never believe in chasing stocks higher, we feel that if a company's growth rate can justify its valuation, we should be buyers for the longer term," says growth stock guru, Ian Wyatt. "This is the case with Greg Manning Auctions."

"Greg Manning Auctions (GMAI NASDAQ) is an auctioneer and merchant of collectables through its live and Internet-based auctions. The company focuses on sales of coins, stamps, sports cards, and affordable fine art. It has become a truly worldwide auction house and merchant of rare collectables. At the end of its 2003 fiscal year (ended June 30 2003), the company boasted over 100,000 clients, 2,100 representatives, and a full-time staff of 600. 2003 was a year marked by many highlights that have contributed to the 560% rise in price for GMAI shares of stock. We believe the company is worth considering for investment in spite of these enormous gains.

"During the year, the company successfully held its first auction in Hong Kong, opening a new office and gallery to run operations in that country. A windfall for this auction house occurred on September 30, when Greg Manning announced that it would auction a major portion of the United Nation's philatelic archives. While the company is experiencing strong organic growth, management also pursued an aggressive acquisition strategy. In September, the firm completed the purchase of three European auction houses. These series of transactions added some $23 million in equity to the balance sheet of Greg Manning Auctions, and brought total equity to $38 million and total assets to $55 million.

"The second half of fiscal 2003 was clearly a turning point for the company, as net income for the second half was $4.1 million versus a loss of $1.3 million in the first half of the year. We are even more impressed with how fiscal 2004 is shaping up. We can expect aggregate sales growth of 40-44% and revenue growth of 37-39%. The real excitement is net income, which management expects will increase by 221-257% based upon their financial guidance. Based on management's net income guidance, we arrive at EPS in the range of 35 to 38 cents for 2004. We believe a conservative number for earnings growth moving forward is 35%.

"Despite the stock's appreciation in price, the strong historical financial picture, and a bright future with strong guidance, we see little institutional interest in the company and no analysts that we could find currently follow the company. We are pleased to see that management's interests are aligned with those of shareholders. As a group, officers and directors hold 81% of the outstanding stock. We are initiating coverage of Greg Manning Auctions with a Buy rating and a share price target of $15."

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