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Senate report appendix b4

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Anexos declaración de Greg Manning ante el Congreso de Estados Unidos, por los ataques contra la española Afinsa y su filial norteamericana en el NASDAQ, Escala Senate report appendix B-4

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Senate report appendix b4

  1. 1. AHPERBDL B’ - Par: +- Esoalet G rou inc °°°°'“"°'5’2°°5 Pi - Fundamierziïals Stror-ig, Press Antec/ cs BUY Nozirizrï/ msitaïtclzng —— Reuïerariítg Buy ESCL, NASDAQ 516.61 investment Olpinionztjin the past fñw weeks Escala Group has issued a ‘ , . _ " szggigggfiggy "" series o press re eases in ¡eating thatt e core auction business is doing well. “.2_i¡_vei2K__. _A[4<_9E gqfiúheñm lts A-Mark Precious Melals unit announced il will provide hedgittg and 5Ï5RÏ<ET ÉAMTQLLJÍÏÏÜ“ , _ '_ . _ financing servicesto the thousands oi coin deaiers in the US. in a joint venture SI-IARES outsrixiioiite z7-7ntm with Cotiectors Universe (CLCT. 514.52, Not Rated). After discussions with the Fm“ ‘ " 5.5.35, ’ heads of A-Mark and Collectors Universe it appears that this new business »« r wéafi-¿»w- - venture could be significant. ‘ with A-Markessentially becornirig the finanoing 5.9 ÏSVALPEÉÏÏÓÉE . - arm of the ratait numlsmatics industry. fultiiiing a role similar to what GE DEFTÉ9TAL“EAIÏJVI(%) fl°""° _ Capital has done for GE (GE, 835,50. not rated). With the shares still ftealiy Diviogiqp/ yiïgm NM/ NM 20% ett their highs’ after a series of false news reports. and with business still ' ' '" ‘i- ' ' performing well, we reiterato ourBuy rating on the shares. AvofoAiLv vÉiÁuMe 1o9256 . ... ... ... ... _.i - Escala reports-strong business results with higher-than-expeoted proceeds in recent starnp, ooin and anttque flrearms auctions. - Acquisition of Greg Martin Auctions looks like it be significantly accretive based on auction announ elements in just the two months since the deal. v New A-Mark venture with Colieotors Universe marks a watershed for coiri dealers in that they now have access to sophistioated hedging and to firiancing. allowing them to grow their Businesses much more rapidly. Escala Group. inc. gs the only publicly trader! U5 sirimp end coin auéiion ttuuse. Vie ¡le numerous - Fteiterating Buy rating and S24 price target. press attaoks continuo while auction houses, ¡lie company serios virtually ÏUÑÜamWÏEÜS SÍEBÜÏÍYÏÏWPFÜVB- every segment ol ‘lia philatelío and numlsmeito market. lts auction Iiousos aparato in the USi Spain, Germany. Stvllzerlanci. anti Hung Kong. Together. those opriratiotts make up the largest nat-Mori; o! stamp eixïd coin sostiene globally. i I Barry M. Sine. CTA, 212-668-5872 ‘CMT barrysiiie@opco nom Fiscal Yuzir ‘Eïlrltlhgfi Por Shure Esttmnteu (USS) l 2005/5. “E, .' ' i: v "ïïfl sisi? 1K . . See pages S - 6 for important disclosttres
  2. 2. ’ QPPENPÏEIMER “www-wm«ocur-wv-«mq. ... ... —.-. ..«= m.. _«m. ... wmw«>. ..¡m. ... .,. ... ... ..m. ..vm. ..wm. =m——w. n—« Fundamentals on Track For Solid December Quarter ln the past few weeks Escala Group has ntacle several announcements which we believe indicate that the core business is on track and that the company continues to leverage its leading position in the philatetlcs and numismatics market to grow its business. On November ‘i446 in San Francisco, California, the companys Greg itaiartin Auctions unit held ¡ls first auction since ¡ts was acquired by Escala in mio-October tor 353.5 million. Greg Martin Auctions is bringing the total prccceds to around tha S55 million which was anticipated. With just this auction z alone, Escala recovrs one-third ot its purchase price, assuming 25% total oommissicns broken out Q. es a 10% seller commission and 15% buyers premium. Greg Martin Auctions has also announced future auctions totating S15 million to be held in 2006 and 2007, so we expect the company to quickly recoup its purchase price. again dernonstrating the Icverage in the compang/ ‘s business i model. Recall that in its purchase of Hong Kong-based John Bull StampALtctíons it recoupod its t _ purchase price via auction commissions in roughly four months. The reason why the company can i get auch rapid returns on acouisitions is that the auction business ls highly capital intensivo and ) small. independent auction houses tiaualty lack sufflctettt financial wherewithal to capitalize on all i l l i I i l l l l l i t i potential business opportunities. Enter Escala Group. With ita balance sheet containing S131 million in liquid inventory, and only 36 million in debt (apart from short-term trading dobl ai A—Marl<), the company has ample capital. Typioaltyg when a seller consigns a collection to an auction luouse, the auction house will advance about half of the expected proceeds. Interest charged is in the 10% to 12% range. So to take on 820 million in auctions. as Greg Martin Auctions has done since the acquisltion, an auction house would need as much as S10 million in capital, lt is ttnlikely that a company with a valuatiott ot’ 83.5 million would have access to that much capital. So while Greg Martin Auctions can now grow its business as part oi Escala. its growth prospects woulcl have been limited previously ' ‘ On November 16 in New York we atiended two stamp attctions held by the companys HR Han-ner attotton house ln New York. Bidding activity was brick with most lots receiving dozens ot’ bicis either by ¡rw-person btdders or by phone, mail or internet blclcters. The Will Bockiey Collection realizcd total prooeeds ot 32.55 million or about 25% over the pre-sale estimate. Most lots sold for several times the reterence price listed in the Scott Sismo Catalogue, which is the same price performance we have observed ln having atiendan about a clozen stamp atlctiona conducted by one of Escalas auction houses. Despite this actual performance, we continue to read press accounts which suggest that catalog prices are inilated and are well above the prices paid by willing buyers in an auction environment. We would suggest that investors, particularly short sellers, attend ona or more ol the companys aucttons. We have always been pleasantly Surprised by the high level ot Iiquidily Escala can generate in its aucttons for what ls often considered a rather illlquid assot. On Saturday. December 3, the company held its quarlerlsi Collections of the World stamp auction al Greg lt/ lanning Attctions ln West Caldwell. New Jersey. The pre-sale estimate was S32 million. Final results have not yet been released but ¡n discussions prior to the attction and in the aticlion Catalog, Mr. Manning was enthusiastic about the Collections being auctioned. Typically the company axceeds lts pre-sale estimate by 20% to 40%. Assuming praoeods of 82.3 million, along tvith proceeds from the Harmer auction. the company? ) announced proceeds are tracking well with our model tor the December quarter. See pages 5 - 6 for important ciisclosures Page 2 a leading antique tirearms auction house. Auction proceeds were 534.6 million with post auction sales .
  3. 3. l w119». vunH"I@Lc‘-“"%VP‘-' l l l l t i l un. ..“"¿unn-ung. »—muaqm4-a«n——. ..am. q.nor= =um. ."mtammmm. «me. .y. ., Ossa-fis Our December quarter estimates call tor revenue of S696 million, EBITDA of 514,5 mililun and EPS of 80.31. We expect the company tc report around the first week of February. A-Mark Financing and Hedging Business Offers Higher Margin Growth Platform On December 1, the companys recently acquired A-lwark Precious Matals business unit announced a tlnancing and ltedging program for the thousands of small raro coins dealers tn the us, in coniunction with the Professionai Coln Grading Service (PCGS) of Collectors Universe. A-lvtark is already advertising this program for the highly sought alter First Strike coins. Wo spoke wlth Greg Roberts, who runs A-Mark tor Escala and Michael Haynes, CEO of Callectors Universe, to understand this new venture. By way ol background, A-Mark ¡s one ol the largest precious metai and Coin trading houses in the world doing business wlth most large national mints and most ot’ the world's iargest banks. We estimate that il is the largest distribtilor ol bullion cotns for the US Mint. ln its normal bttsirtess, A-Mark employs sophislicated hedglltg techniques and utilizas a 550 miliion line ot credit from a Consortium of banks. it takes no risk on the direction of precious metals prices, taking only a small margln cn the 52.5 billion oi ¡nvcntory which cross its books vannually Colleclors Universe is one ot’ two major firms which perform grading and aulhenticalion of colns. The other is Numismailc Guaranty Corporation (NGC). Grading ls critically important since tha quality ol a ccin has a major impact on its valuesAuthentication means that the grader guarantees that the product is what the seller represente it lo be. First Strike colns are colns issued by a mlnt at the beginning ol a calendar year. Since the year on the coin must be updated. a new die is used for minting coins. During normal usage, dies wear out so the coins minted from them are less clistinct, and have iess . . vaiue than those rnínted with new dies. The only time a Collector can be sure that the mini ts using a now die is at the start of the year: These colns are called First Strike and are highly sought alter by coilectors. They can carry valuations 3% to 4% above the value of other coins from that year. Untit now. most small coin dealers had no credit line and no way to finance purchases. Thus they needed to come up with the full value of the coins they were purchasing. ln addition, from the time a cotn was purchased through grading and until sale to the end customer, the dealer was exposed to lluctuations in precious metals prices. Under this new arrangement. A-Mark will offer tinancing and hedging to the dealers. A-Mark already conducts these operations on a iarge scale. it hold S34 million in precious metals futuros contracts at September 30, so it is well sulted to provide this service tor other clients. Presumably, A-Mark will mark up both its ¡ending rates and hedging rates to coin dealers from the low ratos ¡t receives. This arrangoment benefits all conccrned. The clealers benefit since they can how purchase much more inventory, without regard for capital limitations or the future direction of precious metais prices. The mini benefits since they now have a larger market to selt their coins. Collectors Universe benefits because it ls now gradíng a larger quantity ot coins. Finally, and most importantly, A-Mark benefits because il can now offer financing and hedging. presumabty al a much higher marginthal ii normally earns on ¡ts own trading business. A-Mark does not share lts revonue or earnings lrom hcdging or financing. A-Markks risk is limited since the coins are held by a third party, Colleclors Universe or an armored car company. so il has little deíault risk. lt is otlsettlng the hedges it oilers coin dealers with its own hodging transections in the iutures markets. Finally, wc note that thls deal is not exclusive and we would expect A-Mark to artnounce a similar deal with Coltectors Llhiverse competilor Numismatic Guaranty Corporation. Press Keeps Hammering, lgnorlng Solid Fundamentais See pages 5- 6 for important disclosures l Page 3
  4. 4. l l N. .gg. -w. ..w. .,t. «m. .m, _.w. _.mw. wupm. ..vmumu. . . l l l l l l l l SeepagesQ-Bforhnponantwsdomues l OPPENHZEINXEK On Saturday, December 3. the Dow Jones publication Barrorfs published an update article as a follow-up to its September 2004 report on Escala and lts May 2005 report on ‘Escalera spanish parent company, Afinsa Bienes Tangibles. The article made note of a recent Dow Jones/ Wall Street Journal article, SLlgg8Sting_ that it validateo’ the Barron's view. We would note that both pubiioations are published by Dow Jones, so based on this fact, and simliarities in the stories, we assume the reporters coliaborated on the stories. Whlle Dow Jones has been atiacking, Escala has been busy running lts business and growing the company. to the benefit of shareholders. Since Barroifs first story. ESCL shares are up 21%. They had been up 49% until the recent Wall Street Journal article. Fundamental growth has bean even better. The companys cash balance ls 126% higher, trailing twelve months revenue is up 252% and trailing iwelve months EBlTDA is up 79%. Meanwhile, the company has Completed three major acquisitlons. which as wa note above, are all performing extremely well. WhíleBarron ‘s sources call stamps “just pretty bits of paper“. since its first article the company has successttilly auottoned offses million worth of siamps to third parties and sold S129 million lo supply lts parent company's growing retail operation. mutua in the December 3. Barrows article one paragraph starts with "Asked about reports of an ongotng Securities and Exchange Commission investigation invoiving Escala. ..". However, there have been no reports of lnvestigatíons in which the company is the target. The recent Wall Street. Journal article notes thai Capital Coin, noi Escala, is the target of investigatlons. We spoke last week with a class action attorney who was investigatlng the matter and he agreed with this assessment. lt is our understanding that the SEC is invesligating improprtettes in short setting and thai the company itself has comptalned to rogutators. Bananas specifically ¡totes lnthe first paragraph oi its story that. according to management, it is not being investigated. The story also notes that the SEC would not contirm or deny an investigation in which the company ¡s the target. We have contacted the SEC for information pursuani to the Freedom of information Act. but have not received any documents in return. Page 4
  5. 5. OPPENÏ-ÏEIIVXER -—. —.——ms= murn. ..ma. ... ._. rmunus. mgwn-awmmuau_qnusv_wmwwnmammw-mn-muaruum-mwsv-wvvana i 1 Í . . . . Intportartt Drsclosuyes and Certxficattons Other coznpanies mentioned in this report: CLCT i i; - Rina una Price ‘¡argot "¡stoy for: Escala Group, Inc. (ESCL) ns or z-nzazous i emma Innata: 1:91am; 5 m: n: u T. .:““ . ... ____«______ ' - e i -___ i zone ‘ ' 2m V Greater! b; BRISMNÜI. Ati price target; displayed in the chart above are for a 12-monti1 period. Prior to March 30. 2004, Oppenheimer s. Co. inc. Used 6-, 12-. tQ- to 18a and 12- to 24-ntcnth price targets and ranges. For more information about target price historias. piease write to Ïcppentieimer & Co. inc, 125 Bread St. . 16th«Fi. ,— New York, NY 10004. Attentíon: Research Disclosure. Price Target Our price target is S24 per share. Vaiuatiort Methodoiogy Our price target is based on a tnuitipie ot’ 16x our FYOS estimate for EPS of 551.50. Risk Factors Key risk factor ¡e the companys exposure to the stamp coin and pracious metais markets. These markets tene to move inverseiy to eqtiities and bonus end tsnd to (to weii during periods ot rising conwmodity prices. 1 Buy - anticipates appreciation ot 10% or more within the ¡text 12 irionths, and/ or a total return oi 10% including dividend payments, artdpr the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral — aniicipates that the shares wiii trade ai or near their current price anti generally in line with the leading market avereges due tp a perceived absence of strong dynamics thai wouid cause volaiiiiiy either to the upside or downside. aticilor wii! perform less woii than higher rated companies within its peer group. Our readers siwuid bc avrare that tvhert a rating change dccurs to Neutral from Buy, aggressive trading accounts might decide to iiquidate their positions to employ the tunds eisevfincrc. i Soil - anticipates that the shares wii! depreciate 10% or mora in price within the next 12 months, duo to fundamentai vreakness perceiveri in the company or tor valuaiion reasons, or are expected to perform significantiy worse than equities vJÍihih the peer group. i t í See pages 6 tor important disciosures Page 5

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