Quindell board baffled by latest share price drop

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29 September 2014

Stock exchange: concerns over Quindell’s cash flow

Quindell plc told investors today that it cannot explain the latest slide in its volatile share price.

The alternative business structure – which claims to be the largest listed legal business in the world – closed at 136.5p on Friday, down nearly 10% on the day and 35% since announcing its first-half results on 21 August.

A statement issued to the London Stock Exchange today said Quindell’s board “notes the recent share price performance and confirms that it knows of no reason for such falls”.

It continued: “As originally planned, the company will update the market on or before 15 October 2014 on its trading for the quarter ending 30 September 2014 and the continued positive progress being made by the group in respect of all key performance indicators including cash performance.”

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Despite Quindell’s profitability and big profit margins, cash flow appears to be at the heart of much of the market’s unease. Quindell pays upfront for cases, and then in its accounts recognises the expected revenue in advance of actually receiving the cash.

The share price reached a high in April when it hit the equivalent of 683p (in July there was a 15:1 share consolidation). But it has been in freefall since the end of April, when a highly critical report on the company by little-known US analyst Gotham City Research sent it plummeting overnight.

The general sentiment in the investment media has been to sell Quindell shares. Last month the Daily Telegraph wrote that, despite the positive “heavy investment in the pursuit of growth” seen in Quindell’s first-half results, its shares were still “too risky a bet for any retail investor”.

Investment website Motley Fool wrote on Friday: “It seems clear that the market is unconvinced about Quindell’s cash flow. To remedy this it is likely that the company will need to deliver a sustained period of positive cash flow to show that it is strong, stable and heading in the right direction.

“Although shares in the company are incredibly cheap, they could have further to fall in the short term until Quindell can convince the market, via results, that its cash flow is resilient enough to warrant a return to [its post-share consolidation high of] 260p.”

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