This Thing Could Put A Rocket Under Quindell PLC Shares

Quindell PLC (LON:QPP)’s shares are 70% below this year’s high; but there’s potential for a rebound.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

quindellShares in Quindell (LSE: QPP) were at a high of 656p (adjusted for a recent 15-for-1 stock split) in the week before the company released its Q1 trading statement on 16 April. The market valued the AIM-listed group at around £2.7bn.

There was a lot to like in the trading update. Sales of £163m during the quarter were almost as high as last year’s entire first half. Ditto earnings per share (EPS) of 12.3p (again, adjusted for the stock split). And there was £150m in cash on the balance sheet.

Founder and chairman Rob Terry said: “The Board is pleased to announce our twelfth successive quarter meeting or exceeding market expectations in all key performance indicators”. Terry was also bullish on prospects for the full year.

Bif! Sok! Pow!

Then, on 22 April, came the publication of the now-infamous Gotham City Research report: a 74-page dossier damning Quindell’s acquisitions, profits and cash flow as “suspect” and giving the shares a target price of 3p (45p in today’s money).

Gotham City was frank in stating it stood to benefit if Quindell’s shares fell. And fall they did. Within 40 minutes as much as £1.3bn was wiped off the value of the company.

No recovery

Quindell’s immediate rejection of Gotham’s assertions failed to return the shares to their former level. Nor did a 12,500-word detailed rebuttal, and the initiation of legal action, three days later. Subsequent share-buying en masse by the board of directors hasn’t done the trick. Nor has positive news on contracts, trading and corporate governance.

A failure to be accepted for a move from AIM to London’s Main Market hasn’t helped, and today, Quindell’s shares are languishing at 207p, almost 70% below their April high.

Annualising Quindell’s Q1 EPS gives a price-to-earnings (P/E) ratio of 4.2, which falls to 3.5 based on analysts’ forecasts for the full year, and 2.5 on next year’s forecasts.

Those kind of P/Es are usually reserved for heavily indebted firms in danger of going bust, dodgy Chinese businesses, or companies the market suspects of being out-and-out frauds. Not for a company, which, as Quindell’s management claims, has “the opportunity to deliver a multi billion pound business generating significant profits”.

For one reason or another, though, Mr Market thinks Quindell stinks.

What could put a rocket under the shares?

If Quindell’s rebuttal of Gotham City’s assertions, director share-buying, positive news on contracts and trading, have all failed to re-ignite market enthusiasm, what could put a rocket under the shares?

Well, Quindell said back in March that it intended to appoint additional independent non-executive directors. At last week’s AGM, the company told shareholders a number of suitable candidates have already been identified, and further announcements will be made in due course.

Now, I think if Quindell could manage to bag a couple of seriously heavyweight independent non-execs — people prepared to stake spotless reputations on the company — we could see the shares take off on the back of the market’s approval and the squeezing of pesky shorters.

Otherwise, it will come down — as it ultimately does — to fundamentals. In the case of Quindell, cash generation is the biggest concern.

While the company last year reported an income-statement ‘paper’ operating profit of £109m, the cash flow statement showed cash generated from operations of just £3m (or £10m excluding exceptional costs).

Quindell has recently indicated that the cash flow situation is improving. If the hard numbers in the half-year results due in August show the cash flowing, the shares could start flying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

Here’s how I’d invest a £20k Stocks and Shares ISA to help build long-term wealth

Read how our writer thinks about turning a £20k Stocks and Shares ISA into a bigger pot by taking a…

Read more »

Investing Articles

Should I put money into index funds now the FTSE All-Share has paused?

The FTSE All-Share index has been treading water since May. Is it smart to put money into tracker funds now…

Read more »

Investing Articles

Up 8% today, is this FTSE 250 share just getting started?

This cheap FTSE 250 has just hit its most expensive since January 2020. Can it continue climbing, or will it…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Growth Shares

1 FTSE 250 stock I’d love to snap up in the next stock market crash

Jon Smith reveals a FTSE 250 share on his watchlist that he thinks is a little overvalued right now but…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 incredible growth stocks that just soared 25%+!

This writer takes a look at a pair of top growth stocks that have rocketed 25% or more since the…

Read more »

Investing Articles

What are Rolls-Royce shares really worth?

Our writer thinks Rolls-Royce shares might be undervalued even after a staggering price increase. But he also sees reasons to…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

This FTSE 250 company just released impressive results, overshadowed by a dire political situation

Our writer takes a look into an under-the-radar FTSE 250 stock that may have a lot of potential if it…

Read more »

Investing Articles

The Dowlais share price is SURGING after Q3 earnings. I think the FTSE 250 stock still looks like a bargain

One of the worst-performing FTSE 250 stocks of 2024 is up 17% after its Q3 trading update. But Stephen Wright…

Read more »