QPP.L - Quindell Plc

[investor-man]

I saw the attached article on FT today. Quindell was the target of some elaborate short selling scheme that is probably going to get someone in trouble. I know literally nothing about this company, but Gurufocus.com shows the market cap is greater than the enterprise value, which makes this sounds like a nice place to start digging in. Anybody done a good amount of research?

 

URL for article: http://www.ft.com/cms/s/0/a458f5da-70a4-11e4-9129-00144feabdc0.html?siteedition=uk#slide0

[peter1234]

http://www.ft.com/intl/cms/s/0/62565424-6da3-11e4-bf80-00144feabdc0.html#slide0

 

Quindell’s troubles put founder Rob Terry’s past in spotlight

 

Quindell founder Rob Terry’s business career is marked by financial misfortune, including share price crashes at 2 other companies he led

 

Quindell + 2 others makes 3.

[investor-man]

Sounds pretty bad. Statement from the CEO about a very odd transaction he made which got him fired:

 

Robert Terry said: “I entered into the share transactions announced on 5 November 2014, with the best of intentions for the Company and all shareholders and it would have been my intention to acquire more shares were it not for the restrictions due to the discussions leading to this announcement. I am clearly disappointed and sorry that events turned out as they did.

 

In view of the share price performance of the last few days, it is likely that a margin call will be made in relation to the share transactions and, at the current share price, I would expect to relinquish my rights to acquire 8,850,000 shares under the EFH Sale and Repurchase Agreement, rather than satisfying the margin call as this would now no longer make economic sense. This will draw a line under this Agreement and I have no intention of making further use of this Agreement or its like again.”

[investor-man]

Looks like the former CEO concocted a scheme whereby he used his existing shares as collateral for a loan he used to buy more shares. He made it look as though he was purchasing more shares, but his ownership dropped from 10.69% to 8.66%.

 

http://www.fool.co.uk/investing/2014/11/13/quindell-plcs-biggest-shareholder-fidelity-has-been-selling/

 

How do people like this get up in the morning?

[yadayada]

It has current assets of 300m vs a market cap of less then 200m though... It even has a nice net cash position. And it trades on a 2.5x multiple based on last year. And less then 1x based on this year.

 

I mean how bad can it be to be overvalued at this point? Is the cash position not there?

 

It seems it barely generated any cash flows in the past 2 years though. Over a 100 million in net profit, yet not even 10m in net cash from operations. And negative FCF.

 

Wow -137m in receivables. Is there a number on that for this year?

[investor-man]

It has current assets of 300m vs a market cap of less then 200m though... It even has a nice net cash position. And it trades on a 2.5x multiple based on last year. And less then 1x based on this year.

 

I mean how bad can it be to be overvalued at this point? Is the cash position not there?

 

It seems it barely generated any cash flows in the past 2 years though. Over a 100 million in net profit, yet not even 10m in net cash from operations. And negative FCF.

 

Wow -137m in receivables. Is there a number on that for this year?

 

Yeah, there does appear to be some good stuff there, but when applying the principle of "find a reason not to invest as quickly as possible." I think I've found it. The problem with heavily shorted stocks is there's going to be a lot of dirt out there. I'm not the type to carefully sift through the good and the bad, especially when the bad is pretty bad.

[st96dgx8]

Here's the short thesis from Gotham City Research with a price target of 3p/share

 

http://gothamcityresearch.com/2014/04/22/quindell-plc-a-country-club-built-on-quicksand/

 

 

SUMMARY

 

42%-80% of Quindell’s profits are suspect, as we are unable to reconcile the whole with the sum of the parts.

Quindell was little more than a country club until 2008/2009, yet QPP somehow began reporting Microsoft/Google-esque profit margins in 2010/2011.

26%-43% of Quindell’s 2009 and 2010 revenues came from Clickus4.com, a subsidiary owned by CEO Robert Terry.

41% of Quindell’s 2011 revenues came from an undisclosed related party (controlled by a QPP executive).

10+ acquisitions lack economic substance. Several of the acquired companies are little more than paper companies.

QPP’s largest telematics customer is itself (via subsidiaries Himex & Ingenie), accounting for 61% of 2013 revenue.

99% & 80% of Himex’s 2012 and 2013 balance sheets are seriously deficient (Himex is QPP’s largest acquisition).

Former executives allege Himex/Navseeker lied to them about its financial state and that in effect they were operating a Ponzi-style scheme.

2011-2013 accounts receivable are between 86%-231% of revenue, while deferred revenue only 1%-2% of revenue.

Nearly all of CEO Terry’s £11 mm personal investment into Quiindell was used to build Quindell the country club.

No free cash flow and negative operating cash flow.

Quindell fails to explain how its personal injury business complies with Lord Jackson’s reforms & referral fee ban.

The Chairman of the Transport Select Committee, Louise Ellman recently initiated a probe to determine whether ABSs are used to side-step the Jackson reforms.

3 auditors in 3 years, since 2011.

Quindell’s shares are worth no more than 3p/share.

QPP shares would qualify for a de-listing if the shares were trading in US markets.

When asked, Quindell refuses to answer simple questions about its business.