Im very much one for putting my hands up and admitting when I get things wrong, and I was taken by surprise last week by a court decision to allow Watchstone Group (LSE: WTG) to redistribute cash to shareholders.
The cash came from the sale, back when the company was known as Quindell, of the bulk of its insurance business to Australias Slater & Gordon. The plan all along was to hand over mostof it to shareholders and, incidentally, the Slater & Gordon share price has crashed since it took on the Quindell business, so the acquisition hasnt looked too successful so far.
Anyway, the only problem with the planned cash handover was that court approval was needed. With the spectre of a Serious Fraud Office investigation into the companys accounting and practices under the leadership of disgraced ex-chairman Rob Terry, I didnt see that as likely to happen.
But it has, and the firm can now go ahead with its intended payout of 90p per share, which should happen by the end of the month so if you were a shareholder as of 18 December youll get a nice pocket filler.
Share consolidation
The shares were suspended on the day of the decision and have been readmitted to trading today, and you might be surprised to see the price apparently more than doubling to 166p. But theres also been a share price consolidation, in which every 10of the old shares have been replaced by one new share, meaning that the current share price represents 16.6p per old share.
And that fall in value reflects the cash handout. Existing shareholders have 16.6p per old share plus 90p on its way, totalling 106.6p, or roughly what they had last week. If you buy now, of course, you wont get the 90p cash.
But what does it mean for the company going forward?
Well, for one thing, a legal claim by a group who lost money is going ahead. Acting on their behalf, law firm Your Legal Friend is seeking 9.4m, claiming its clients were misled by previous Quindell accounts filings those accounts were restated in August, turning previously claimed profits into hefty losses. Should this claim succeed, there will almost certainly be others to follow. Your Legal Friend already has a second claim from others in the pipeline, saying it has so far been contacted by more than 1,100 investors concerning their investments in Quindell.
And we still dont know what the SFO outcome will be though my hunch is that it will not be along the lines of everything was just fine and Terry is a lovely bloke whos never done a thing wrong in his life.
Anything left?
But even putting that aside, if you buy shares today, your 166p would get you a stake in a small handful of lossmaking companies. The main ones aretelematics firms Himex and Ingenie thatare both burning cash, and the similarly unprofitable PT Healthcare. And theres no sign of how Watchstone is going to be making any profits from these lame dogs any time soon.
So to those who bought in and made a profit from the cash handout, I say well done! But looking at whats left of the company, its still in bargepole territory for me.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
