Never a dull moment at Quindell

After days of steep share price falls in Quindell, it was inevitable that board changes would be demanded by the institutions and last night Sky news confirmed that Chairman Rob Terry and two other directors would be departing the company after entering into a controversial share sale / purchase agreement with Equities First Holdings. Since the EFH deal was announced the shares have tanked from around 120p to as low as 43p yesterday. This morning an RNS was released which confirmed the Sky story with Terry staying on a paid consultant but resigning from the board to “to assist the Board, where appropriate, in executing its strategy.”

Sentiment was also hit badly by news on Monday that Canaccord Genuity Limited resigned as joint broker on October 21st leaving the only remaining Nomad as Cenkos Securities. Rumours swirled yesterday aided by shorters such as Evil Knievil that Cenkos were on the verge of quitting or had even tendered their resignation with the implication that Quindell would be forced to delist from AIM without a Nomad within a month. Then further speculation cropped up on the bulletin boards that a £600 million buy out was imminent after the Sunday Times published a story that the company was talking to hedge funds for financing. None of these rumours concerning Cenkos or financing have been substantiated to date. The other piece of bad news on the 13th November was that Fidelity had sold down a chunk of their holding in Quindell adding fuel to the fire that institutional investors were throwing in the towel.

Today’s RNS stated that David Currie, the ex-Investec corporate finance man, will become non-Executive Interim Chairman of the Company with immediate effect and a process has begun to find a new Chairman. Laurence Moorse, Group Finance Director, will step down from the Board following the 2015 AGM and will remain with the Company thereafter for a period of up to twelve months in order to effect an orderly handover.Steve Scott, a non-executive director of Quindell, has agreed with the Company that he will step down from the Board with immediate effect.

Rob 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.”

Investors are now hoping that the board changes will draw a line under the perceived governance issues associated with the company with the chance of a new start under a new Chairman, albeit from the existing board.Many will be hoping for a strong and respected replacement for Terry very soon. For now Currie is custodian and it will be key for the company to allay fears about its financial performance and accounting procedures. If the figures are to be believed even up to Q3 2014, the current 54p share price appears remarkably cheap (with earnings per share of 45p in the first nine months of the year)but many remain distrusting of the numbers even with KPMG as their auditors.  The revenue recognition and accrual system used by Quindell, like many service companies of its type, needs careful financial attention to ensure that profits are not being overstated.

The next financial update is due in late December (last year it came on December 18th) but it would be prudent for the company to reassure the market earlier in order to restore any hint of confidence. I am wondering what Rob Terry’s reference to discussions leading to this announcement mean “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”. Could discussions perhaps relate to the mysterious buyout or was it a cash injection to stabilise sentiment? The 8.8 million shares owned by EFH as part of the deal with Rob Terry will now be sold into the market at some point if they have not been already.

Its certainly been a hell of a week or two for Quindell and with the shares down around 50% in little more than a week the company’s army of long rather than short private investors have had plenty to be worried about with all the speculation and RNS’s . It’s either a fantastic potential recovery stock or destined to be an infamous basket case of AIM and the next set of numbers will be keenly watched. With Fidelity selling some of its stake will the other institutions like M&G hold their nerve after the latest controversies? Even with a massive write down, the shares would still look cheap with them currently trading at a p/e of less than one unless Terry really has hugely cooked the books. It will be interesting to look back at today’s 54p share price after the 2014 full earnings in Q1 2015 are available for scrutiny.

Quite a story so far this year with billions wiped off the market cap since shorters Gotham published their scathing report in April with a 3p (45p post consolidation) price which was hit yesterday afternoon. I’ll be watching with great fascination at this unfolding saga. AIM…..!!!??? Lets hope it’s an Ocado and not a Langbar International.

Contrarian Investor UK

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