Quindell PLC: A Country Club Built On Quicksand
Gotham City Research initiates coverage on Quindell PLC, with a price target of 3p/share (92% downside)
SUMMARY
42%-80% of Quindell’s profits are suspect, as we are unable to reconcile the whole with the sum of the parts.
Quindell was little more than a country club until 2008/2009, yet QPP somehow began reporting Microsoft/Google-esque profit margins in 2010/2011.
26%-43% of Quindell’s 2009 and 2010 revenues came from Clickus4.com, a subsidiary owned by CEO Robert Terry.
41% of Quindell’s 2011 revenues came from an undisclosed related party (controlled by a QPP executive).
10+ acquisitions lack economic substance. Several of the acquired companies are little more than paper companies.
QPP’s largest telematics customer is itself (via subsidiaries Himex & Ingenie), accounting for 61% of 2013 revenue.
99% & 80% of Himex’s 2012 and 2013 balance sheets are seriously deficient (Himex is QPP’s largest acquisition).
Former executives allege Himex/Navseeker lied to them about its financial state and that in effect they were operating a Ponzi-style scheme.
2011-2013 accounts receivable are between 86%-231% of revenue, while deferred revenue only 1%-2% of revenue.
Nearly all of CEO Terry’s £11 mm personal investment into Quiindell was used to build Quindell the country club.
No free cash flow and negative operating cash flow.
Quindell fails to explain how its personal injury business complies with Lord Jackson’s reforms & referral fee ban.
The Chairman of the Transport Select Committee, Louise Ellman recently initiated a probe to determine whether ABSs are used to side-step the Jackson reforms.
3 auditors in 3 years, since 2011.
Quindell’s shares are worth no more than 3p/share.
QPP shares would qualify for a de-listing if the shares were trading in US markets.
When asked, Quindell refuses to answer simple questions about its business.
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This is a pretty striking list of concerns, especially the related-party revenues, unusual profit margins, weak cash flow, and acquisitions whose economic substance is questioned. I found the way the points build on each other particularly interesting, because each detail adds another reason to look more closely at the company’s financial picture. Crossy Road is a casual arcade game where I also have to pay attention to multiple hazards at once rather than judging a route from a single detail, which made that investigative approach feel relatable.
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