TOM WINIFRITH ON QUINDELL – MORE RED FLAGS THAN ON A MAY DAY IN MOSCOW
Shares in AIM listed Quindell Portfolio have slumped to 7.12p following a disastrous results presentation. But that still values this strange stockmarket beastie at more than £400 million. Folks cannot say that they were not warned about this… On my new www.shareprophets.com website, myself, Lucian Miers and Evil Knievil (SBM editors ‘pal’!) all warned folks to get out well before the current debacle. Personally, I still see the shares as a strong sell – there are just too many red flags here.
Supporters will tell you that the stock now trades on a PE of 5 and that the recent slump from 13p is all down to wicked short sellers and scumbags like me spreading disinformation. Er…no. I list below the red flag issues which should tell you that this will end in tears for the bulls and obscenely excessive bacchanalian celebrations round at Real Man Pizza Company for the bears.
Can you explain exactly how this company makes its money and plans to grow as a result of its RNS releases and website? Well not easily. Quindell just appears intent on blathering on about why its shares are so cheap without explaining how the business actually functions.
The obsession with share price promotion sees Quindell commission vast amounts of independent (i.e. paid for) research all of which serves up ludicrous targets. There is invariably a reverse correlation between the volume of paid for puffery (oops I meant research) commissioned and the share price performance.
The results statement was littered with phrases such as “one-off” and “exceptional” in relation to costs. But these seem to have a habit of appearing year after year.
The results statement again and again mentioned how numbers were ahead of forecasts. This has all the hallmarks of a promote.
It is unclear what underlying organic growth is compared to acquisition driven growth. It seems to be a lot of the latter.
Trade receivable at the end of 2012 ballooned to more than £200 million (more than annual sales). The company says that this is a result of acquisitions and that its superior systems will reduce that number. We shall see.
There is a loan made to third parties in the accounts for £15 million. Who is this loan to and why was it made? No-one seems to know. It needs to be explained.
The company took out a derivative so that those who supported a £17 million placing last year needed to fund an acquisition will be protected if the shares fall. Surely these shareholders are being treated differently to others (who have to pay for the derivative and have no guaranteed floor on the stock). Can someone explain why this does not breach company law? It is certainly incredibly unusual. I have never seen it before.
The company burned cash last year if one includes the cost of acquisitions. If it is an acquisition driven company, its shares cannot now be used to fund purchases where will the cash come from to continue the rollout?
The CEO spends vast amounts of time on twitter saying how cheap his stock is.
That is ten red flags for starters. I have a train to catch otherwise it could be twenty five without me breaking into a sweat.