Plenty of stress for Quindell shareholders

It was amazing to be watching Quindell this morning and seeing it drop as low as 62p. In mid-October the shares were trading at around 160p after announcing a contract win with Aviva Canada and over 130p last week on the initial announcement that directors were purchasing shares.

This week its been down hill all the way as the full details of the directors arrangement with Equities First holdings (EFH) were published in an RNS Monday morning causing share price declines of 20-25% every trading session. Controversy and conspiracy theories has been stoked as it became apparent that EFH had taken possession of the shares and they had no legal obligation to hang onto them for the 2 year period of the deal. However Rob Terry, Chairman of Quindell stated in the RNS on 10th November that “In entering into the sale and repurchase agreements to provide finance, each of us Purchasing Directors relied upon assurances from EFH that, notwithstanding EFH’s legal rights, the custom and practice of EFH was that the shares transferred would not be disposed of outright, other than in a default event and will be held by their custodians throughout the term of the agreement, nor would they engage in short selling activity. “. However Terry’s reassurance on the matter seem to have done little for investor sentiment with trust battered and an avalanche of selling.

The mood was further hampered this morning as reports in the newspapers emerge and of an FCA investigation. Of course the bulletin boards were full of talk of imminent suspensions and resignation of Cenkos and Cannacord as brokers for the company. Many were worrying that their investment could be worth 0p with the accompanying sleepless nights!

At the current share price in the high 60’s, Quindell is trading at around a p/e of 1 if you believe the financial RNS’s. The first half interim results showed Basic EPS of 30.1 pence which increased by 155% (H1 2013: 11.8 pence) and the Q3 trading update issued on 13th October showed Adjusted EPS of c.15 pence that increased by 54% (Q3 2013: 9.75 pence). We can assume at least 15p of earnings in Q4 and probably more making it 60p in total for 2014! Operating cash flow was significantly ahead at c.£9.2m after £0.2m of exceptional costs with cash at 30 September 2014 ahead of plan at £78.9m after paying down borrowings of c.£6.5m during Q3 (H1 2014: £85.0m).

The decision by Rob Terry, Laurence Moorse and Steve Scott to enter into the EFH share deal has been a disaster but unless the Q4 earnings are a similar catastrophe and auditor KPMG doesn’t sign off the 2014 accounts the sell off looks overdone. Shorter Gotham was targeting a price of 45-60p in its report earlier in the year and it has managed to achieve that more or less this morning. Full clarification by the company on the current trading performance would be welcome for investors. Tom Winnifrith must be feeling pretty happy with himself after all the allegations against Quindell and for those following his advice to sell their QPP shares their share account would be looking healthier right now.  But I have a feeling that the company’s shares won’t be suspended and further RNS’s will be more supportive of the price. Everything is now on the numbers.

A very stressful few days for beleaguered Quindell shareholders but possibly fortune favours the brave and with all the talk that everyone should sell before catastrophe it is usually a signal for an AIM share that it is actually a buying opportunity if you have the stomach for the ride. The low 60’s looked too low even for Quindell! With all the emotion around this share it doesn’t get more exciting or stressful than this. I see the share is now back to 70p.

Contrarian Investor UK

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