Time to Bid! by Sandra Ward
Highlighted companies: Sotheby's Holdings Inc. (BID), Realogy Corp. (H), Tiffany & Co. (TIF), Ritchie Bros. Auctioneers Inc. (RBA)
Summary: A boom in the international art market has lead to spectacular growth in auctioneer Sotheby's Holdings Inc. (BID) this year (shares are up over 85%), and it could still rise another 20%. New wealthy collectors from Russia, China, and India, along with domestic hedge-fund managers and private-equity investors are driving the current art-market bull. Historically upturns in the art-market last six years -- meaning the present boom still has another three to go. Key figures: (1) Revenues are up 36% from last year. (2) Net income for '06 already exceeds '05, and the major art auctions of November are still-to-come. (3) Impressionist sales could more than double last year's ($380M vs. $180M). (4) At 17 P/E, it is still at a discount to other luxury-goods companies. (5) Last month it paid its first dividend ($0.10) in six years. (6) Profit margin: 31% vs. 2% in '01. (7) Cash flow: $210M up 45% from '05. Sotheby's key competitor is privately-owned Christie's International; the two dominate the market, run more-or-less even in market share, and tend to play follow-the-leader in price increases. Besides art BID collects licensing fees on their brand-name, Sotheby's International Realty, now owned by Realogy Corp. (H); Sotheby Diamonds, a retail-joint venture, will design and sell diamonds valued between $50,000 and $5M; it plans to expand its financial services through which it lends money to clients using art as collateral. On the downside, if Sotheby's is unable to match the torrid sales of recent auctions, year-to-year earnings comparisons could disappoint investors expecting never-ending growth.
Quick comment: For those who can't afford Cezanne or Chardin, Sotheby's is an opportunity for proxy investing in art • A recent stamp scandal at collectibles merchant Escala Group Inc. (ESCL) may have pushed their scandal-averse customers in BID's direction • Reuters headlined Barron's Sotheby's pump