Why Quindell (LSE: QPP), why now and why £5,000?
First, £5,000 is only a small portion of my virtual savings, and my virtual portfolio carries very little risk. It’s not that I enjoy throwing money out of the window, but as long as there’ s life at Quindell, there’s hope. I like to believe that.
Second, I do not assume that Quindell has cooked the books, which seems rather implicit in its stock price right now. So, upside could be 200% or more by the end of Q1. If the market is right, however, Quindell may have ceased to exist by then.
Well, if I lose it all, that’ll be my well-deserved Christmas present!
Investment Strategy
Quindell is a highly speculative bet.
Portfolio diversification is the one rule of thumb in my investment strategy. I have not been attracted to equities for some time: other less risky assets — as such I perceive Europe’s periphery bonds — have delivered higher returns in the last 18 months or so.
Consider the very long-end of the synthetic yield curve of Europe’s periphery, for instance. In recent years, bonds with maturities of 30 years or more have delivered a pre-tax total return of about 25% annually, before taking into account a 3% to 5% loss due to currency adjustments (selling British pounds to buy euros) — a risk which is offset by a much lower tax rate for the bonds. Marginally lower returns have been achieved by similar fixed-income securities with shorter tenor.
Quindell would heighten the volatility of my virtual portfolio, but even a full loss would be covered in less than 30 months by coupon payments.
Contracts And Cash Flow
While it’s very possible that Quindell is running out of cash and may have to rely on debt to finance its operations, opportunistic lenders, relationship banks or high-yield investors may decided to throw the company a lifeline in order to continue to trade into 2016.
There’s a slim chance Quindell will manage to borrow at convenient rates, but it emerged this week that Swinton Group and Insurethebox have extended their existing contracts. While I don’t know how the portfolio of clients really looks like, Quindell may have other irons in the fire.
Now you may think I am crazy, and that’s fair enough.
What I know, however, is that corporate governance is still a massive issue, and Rob Terry should take the blame. Mr Terry slashed his stake in the company to 2.99%, it emerged earlier this week, when Quindell stock was hammered. A full exit from Terry would be great news, in my view.
On the day, Robert Fielding, chief executive officer, said: ‘Sales of shares by Robert Terry have no impact on the day-to-day operations of the business. The group’s business remains robust and we continue to work hard to deliver excellent service to our customers.’
Quindell has recently appointed PwC to review its operations. I do not expect any upside from the findings, but Quindell shares have bounced back in the last couple of days, and trade well below liquidation value.
That’s not enough to take the risk, is it?
