I wrote an article with this exact same title back in May, when I thought the tactics being used by Gotham City Research in its excoriation of Quindell (LSE: QPP) were somewhat underhand Gotham was slagging off a company when it would benefit from a falling share price, and short-selling had started before the report was released.
But while I still dont like that approach to company analysis, my opinion on Quindell has done a U-turn.
Bought and sold
I added some Quindell shares to the Fools Beginners Portfolio in June, but subsequent developments made me question that decision. And after the companys third-quarter update on 13 October, I decided it was hot potato time and I dropped it.
The big problem is that Quindell is a supposedly growing company thathas got where it is by acquisition, and its apparently still in early days when it comes to profits. But its talking and acting like a has-been thats desperate for cash, with cashflow being so far behind recorded profits that its surely the cause of soiled underwear wherever investors meet.
The much-vaunted (worth 1bn) RAC telematics roll-out was canned, essentially because the cash was not there to pay for it.
Disposals? What?
And then theres that Q3 update. As well as the discomfort Ive already described, I was also disturbed to hear that the company is considering the disposal or demerger of assets or divisions as one of its options for maximizing shareholder value (which I read as meaning it needs cash).
Quindell crowed about achieving adjusted operating cash flow of approximately 9.4m in the quarter, but thats against gross sales of 200m and EBITDA of 83m. And the adjusted bit means it has not accounted for any exceptional costs, tax or interest.
There were net funds of only 25m in the bank, the same as at the halfway point. The firms interim report had recorded cost of sales of 161m and administrative costs of 57m, and with cash flow being so far behind revenues and profits, the companys ongoing liquidity must be in serious question there have already been reports that it is increasingly delaying the payment of its trade creditors.
Then theres the latest from Gotham City
Built on Quicksand?
After the release of Quindells Q3 update, Gotham told us that its previous valuations of the company now seem rather high it had previously suggested 45p per share, with the market currently valuing Quindell shares at 152p!
Gotham went on to tweet Per Quindells trading statement & financial highlights released today, we believe #QPP is behaving as if it is at high risk of bankruptcy.
The more I read about Quindell, the harder it gets for me to disagree but for the sake of shareholders, I still hope Im wrong.
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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.
