Volatile trading in Quindell shares as company announces interims

Quindell, the insurance claims processor and telematics specialist has had a pretty volatile trading day today. Falling as low as 183p in early deals and now down 8% at 193p after the publication of its interim results for the period ending 30th June 2014.

On the face of it today’s RNS looked positive with half year revenues for 2014 climbing 119% from £163.3 million to £357.3 million, while profit-before-tax also rose 292% to £153.7 million. Basic earnings per share came in at 30.1p and increased by 155% (H1 2013: 11.8p) with adjusted EPS of 29.6p increasing by 79% (H1 2013: 16.5p).

Quindell’s shares have had a strong run in the last few days prior to today as it issued a further online rebuttal on its blog to allegations posted by Shareprophet’s and Tom Winnifrith with a threat of court action if he refused to take down posts relating to the company. Winnifrith has been critical of the companies accounting practices as first highlighted by Gotham City Research. The war of words continues between the various parties and who knows what the truth really is, with the accounts difficult to interpret at the best of times. Recognition of revenues and cash flow and a potential need for a further fund raising as money collected from the processing of insurance claims could potentially take longer than the company hopes have been a drag on sentiment. Who is right on cash collection is the $64,000 question but it is reassuring that the auditors KPMG have signed off the accounts. Winnifrith blogged today that “As such I am afraid that I am drawn to one conclusion. Quindell will face a major cash crunch within nine months as the legacy bulge of RTA cases settle and it moves onto being reliant on ID for cashflows. If its accruals policy – which is 100% out of kilter with all data relating to ID and to all industry metrics – is thus show to be overly aggressive not only will there be a cash crisis but there will be huge write-downs against the P&L in 2015 as all of this stuff is written back.”

The company said today it was on track to meet market expectations for this year but there was no direct mention of the RAC contract which the FT highlighted recently as having run into problems.  Full year revenues are expected at £800-900 million. Todays RNS stated “This includes certain contracts being restructured to ensure the optimum return on cash resource -however profit and cash guidance is not dependent on any upside from these initiatives. Also as a board we reaffirm our commitment to strengthening the management and further enhancing corporate governance as appropriate for a business of our size and scale.”

The company also announced the appointment of Stefan Leon Borson as group chief legal and communications officer. Borson is a qualified solicitor and is the former chief executive of Redbus Media Group.

The battle between the doubters and the management team at Quindell is a fascinating one to observe and it will be interesting to see whether the spat between Winnifrith and Quindell ends up in the courts. I don’t hold the shares and don’t intend to given the huge swings in the share price right now.

Contrarian Investor UK

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