Todays trading update from Quindell (LSE: QPP) has caused shares in the software and consulting business to rocket by 28% following what has been an exceptional period of performance for the company. In fact, shares in Quindell are now up by 163% since the turn of the year, although due to their prior fall it means that they are now only back to the same level as they were just two months ago.
The update from the company includes news that Quindell will replace its non-executive Chairman and will also appoint a Strategy Director who will additionally take on the role of Deputy Chairman. The two individuals concerned have considerable experience in similar positions, with new Chairman, Richard Rose, currently being the Chairman of AO World, Crawshaw Group and Booker Group, while new Deputy Chairman/Strategy Director, Jim Sutcliffe, is currently Chairman of Sun Life Financial, Canada, a non-executive director at Lonmin, as well as being Chairman of the Codes and Standards Committee of the Financial Reporting Council.
In addition to these two major appointments, Quindell will also utilise the consultancy services Marisa Cassoni (former Finance Director of Royal Mail) and John Tomlins (currently a non-executive director of A J Bell). All appointments seem to have been well-received by investors, which is at least partly due to the experience and strong reputations that the new appointments appear to have.
In addition to the board appointments, Quindell has also confirmed in its update that it has entered into an exclusivity agreement with a third party in respect of the possible disposal of an operating division of the company. It also states that it is now in early discussions with a range of parties interested in exploring possible transactions with other of its operating assets. While this comes as little surprise, it could prove to be positive news for the company because it may allow it to raise cash and rationalise its operations while it develops a strategy for long term growth.
Meanwhile, Quindell states that trading remains robust in both its Professional Services and Digital Solutions divisions. Operating cash flow for the second half of the year was 13 million, with the board stating that it remains comfortable with the overall cash position and being of the opinion that Quindells resources are sufficient to deliver on managements current plans. While this is positive news for investors in the company, Quindells revenue and earnings figures remain subject to the independent review of its accounting policies, which is being conducted by PwC and is ongoing. As a result, there remains considerable uncertainty in this regard.
Clearly, todays update from Quindell is positive and shows that it is moving in the right direction. The appointments of experienced people to the board should help to improve investor sentiment in the short term and also deliver much-needed clarity and direction regarding the companys future strategy. In addition, Quindells cash flow and operational performance appear to be relatively sound and potential disposals could help the business to become more efficient, thereby aiding its longer term growth outlook.
Of course, the independent review hangs over Quindell and, although its share price could continue to spike in the short term (after a calendar year that saw it fall by a whopping 85%), longer term investors may wish to wait for the outcome of the review before buying a slice of the company. After all, a disappointing outcome of the review could put the companys share price under severe pressure.
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