Warrantech is in the unusual business of providing warranties and service contracts for products whose original-manufacturer warranties have expired. Prosaic as the business may seem, its potential is quite large, says Jonathan Berg, president of Berg Capital, which has accumulated a stake in the company.
He may be right--or at least insurer American International Group thinks so. In late July, AIG purchased $6.4 million of Warrantech's preferred shares, convertible to a 20% stake in the company's common stock. Why? "Warrantech is a major force in its business," says analyst Richard West of Sherwood Research Group in New York. Warrantech markets and administers service contracts and limited-warranty programs for the auto, computer, electronics, and appliance industries.
West says Warrantech and AIG expect revenues to hit $400 million in 3 years, vs. the estimated $54 million in the year ending June 30, 1994. West figures revenues will jump to $75 million in fiscal 1995, when the company should earn 50 to 55 a share, vs. an estimated 16 in fiscal 1994.
AIG and Warrantech have also formed a joint venture in Britain called TechMark Services to provide the same extended warranty and service contracts in Europe.
Warrantech's stock, now trading at 3 / a share, doesn't yet reflect the vast potential the link with AIG represents, says money manager Berg.