Quindell (LSE: QPP) issued a trading update this morning, but even the firms remaining diehard investors were not impressed, sending the insurance outsourcers stock down by 5% in the first hour of trading.
To be honest, Im surprised the fall wasnt worse.
In my view, todays update is a transparent attempt to prepare investors for a major profit warning and cash crisis early in 2014, when the firm will be required to update markets on its fourth-quarter performance and full-year results.
We need a review
For me, alarm bells started ringing as soon as I saw that Quindell had engaged PwC to conduct an independent review.
Firms that are trading broadly in line with managements expectations as Quindell claims to be dont need independent reviews from expensive accountants.
Quindell says that the decision to appoint PwC was made in conjunction and consultation with the Companys bankers, advisers and auditors and will include a review of Quindells main accounting policies.
The implication is obvious, in my opinion: Quindells accounting policies may prove to be inappropriate, or even misleading.
Todays trading update was incredibly vague. The firm made no mention of the key performance indicators and targets which have been a feature of recent updates, except for a vague remark that cash receipts [from legal services] are greater than in comparison to previous quarters.
As recently as October, Quindell was targeting positive cash flow during the fourth quarter. There was no mention of this today, suggesting that this is unlikely to happen. This suspicion was confirmed, for me, by Quindells comment today that growth in cash receipts has not been as significant as previously anticipated.
How much cash?
Previous updates have included information about Quindells cash balance, but todays update did not include this vital piece of information.
However, the firms statement continued access to its three credit facilities would be needed to deliver on current plans was alarming: the company is clearly now dependent on its banks goodwill to continue trading.
Other warning signs
If todays statement wasnt enough to qualify Quindell as an immediate sell, then other recent events should be.
Over the last few weeks, weve seen Quindell founder Rob Terry and finance director Laurence Moorse sell the majority of their shares, plus unconfirmed reports suggesting that Quindell is increasingly slow to pay its suppliers, and may be losing business.
For me, there are far too many unanswered questions about Quindell, and I believe there are far better buys elsewhere in todays market.
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Roland Head 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.