FT story on RAC JV sends Quindell shares down 13%

Some rather uncomfortable reading for shareholders in IT outsourcing company, Quindell, this morning with the FT reporting problems with its joint venture with the RAC, sending its shares down around 13% to 180p.

In April 2014, Quindell and RAC announced a deal to place tracking devices using telematics technology in cars with a joint venture creating a new business called “Connected Car Solutions Limited”. The two companies committed £15 million upfront to the deal, with plans for a further £70 million investment as the project progressed.The joint venture company was to market and distribute this technology across the UK, Europe and Canada and the technology would allow higher risk drivers such as the young to cut premiums by allowing them to monitor and modify their own driving behaviours.

The newly formed company was to install 2 million telematics boxes with a target of 50,000 per month from July. The Financial Times reported today that:

“However, installation of the so-called telematics devices in consumers’ vehicles is yet to start, and talks about restructuring the tie-up have stalled, said people familiar with the project. The current impasse hinges partly on warrants that RAC also received as part of the deal, which would give it the right to receive 250m shares in Quindell when the latter’s share price reaches 50p or more in the two years following the agreement. Quindell’s share price was 43p when the deal was struck in April. However, it plunged later that month following the publication of a report critical of the company by short seller Gotham City Research. The insurance claims processor has since undertaken a one for 15 share consolidation. The current 205.5p share price is equivalent to a 14p per share pre-consolidation price, and the stock would have to more than triple in value to 750p for the RAC to receive shares worth £125m by exercising its warrants.

Cash burn remains in focus as the company’s business model means that it takes time for it be reimbursed for insurance claims it is processing and the article this morning points out that “Proceeding with the joint venture would absorb significant amounts of Quindell’s cash, which fell from £200m in December to £84m in June, as the AIM-quoted company acquires more insurance claims to process. Quindell also has £60m in bank borrowings and other debt.”

Hopefully Quindell will quickly address concerns raised with a timely RNS but the extreme volatility with this share continues for now. After the Gotham City allegations, problems with the RAC is the last thing the company needs! A firm statement would counter these allegations but for now the shorters continue to have field day with QPP. The company may be a bulletin board favourite but like many others e.g. Gulf keystone and Xcite Energy, rewards seem to be elusive at the moment.

Contrarian Investor UK

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