Much of our coverage of the controversial Quindell has focused on its transformation into one of the UK’s largest law firms. This rise has not received the wider attention it might, perhaps because Quindell was listed on Aim, London’s junior market, and until recently described itself in the garbled jargon of a technology company.
We suspect that could change. A stock market valuation of more than £2.7bn earlier this year has collapsed to less than a tenth of that total, posing a problem for a group that has funded both breakneck expansion and day-to-day expenses by issuing shares. Robert Terry, the company’s founder, recently sold stock during a period that he had promised would show Quindell’s ability to stop burning through cash, and has resigned as chairman.
Which prompts a question for the legal industry in general and the Solicitors Regulation Authority in particular: what would happen if a law firm managing 100,000-plus claims were to fail? Read more
Here is a selected chronology of recent events at Quindell, one of the UK’s largest law firms, whose share price has collapsed in the last month.
October 13 – A third-quarter trading statement says the company’s preferred measure of cash flow is ahead of expectations. (Share price 143p).
October 21 – Quindell announces what it calls a major contract win. Also, Canaccord Genuity gives notice of resignation as joint broker and financial advisor, which is not announced. (Share price 161p). Read more
On Wednesday Quindell — the UK’s largest listed law firm — announced that its chairman, finance director and a non-executive director had borrowed some money to buy stock. The announcement was titled “directors share purchases”.
The company, the London Stock Exchange and Cenkos, Quindell’s nominated advisor, were then bombarded by questions from investors (and journalists) about the true nature of those transactions and the quality of the disclosure.
A correction has now followed. Details below but the essence is this: one month into what is widely regarded as a crucial quarter for the business, Quindell’s founder sold a fifth of his stock at a deep discount as part of an agreement to buy it back in two years time. He received £7.5m, and then spent £1.2m buying new shares. It was only details for the latter part of the transaction which Quindell initially disclosed. Read more
The Wednesday announcement by Quindell — an all purpose law firm, technological insurance outsourcer and scaffolding company — that three directors have arranged a loan to buy stock has not had the effect some might have expected.
The shares closed up on the day, but Thursday saw the shares hit a new post consolidation low of 118p in late trading. So what happened?
The answer may be a question of disclosure, in that the announcement raised more questions than it answered. Read more
John Aglionby, who spoke to Quindell chairman Robert Terry for this FT story on Monday’s trading statement, asked a follow up question. Would it be wrong to say that Quindell revised downwards its revenue guidance, but still expects to hit targets for key performance indicators?
Their answer… well, here it is in full:
The Company does not use Revenue as a Key Performance Indicator or provide guidance on the levels of revenue it will do, only on what level is needed to achieve current market expectations for its KPI’s based on its current EBITDA margin guidance and its confidence in hitting these levels.
A third quarter trading statement arrives from the UK’s largest listed law firm. The board remains confident of hitting its targets for this year, while generating revenues of £750m to £800m, a lower level than previously forecast.*
All that work has again produced de minimis cash flow, however.
Adjusted operating cash flow1,4 for Q3 significantly ahead of expectations and guidance with c.£9.4m inflow compared to original guidance of breakeven (H1 2014: £51m outflow also £9m ahead of expectations) which includes c.£3m of business integration activities which were planned and included in prior guidance
The FT’s ever resourceful Henry Mance has obtained copies of the Quindell versus Gotham City Research court documents from the Queen’s Bench.
They are much as you might expect. Quindell sued Gotham for defamation in relation to the April report which blew its share price apart. Gotham, protected by US law against enforcement of foreign libel judgements, did not respond and so a summary order ruled in Quindell’s favour.
One possible surprise is that Mrs Louise Tracey Terry, wife of chairman Robert Terry, also claimed for libel along with her husband and the company he founded. Read more
Quindell has announced that the High Court of England and Wales ruled in its favour in a libel judgment against Daniel Yu’s US based short selling outfit, Gotham City Research.
The UK’s largest listed law firm filed suit in April after Gotham published a highly critical report on the group, a former country club transformed by a string of acquisitions. Following publication of the report Quindell’s share price collapsed.
The company said that it had received judgment in its favour after Gotham failed to provide either acknowledgment or a defence against the libel proceedings. Read more
The plan to revolutionise the car insurance industry has crashed. Quindell has announced that what it claimed in April was the world’s largest ever deal to put monitoring devices in cars, is dead.
As the FT reported in August, a joint venture with the RAC to put so-called telematics devices in cars of RAC members failed to get going and talks to restructure the entity, called Connected Car Solutions, fell apart.
Quindell said that it is paying a net £3.5m to buy out its joint venture partner, and has abandoned plans for significant investment in CCS this year.* Read more
A note arrives from house broker Canaccord Genuity which appears to resolve our conundrum about how Quindell spent £335m in the first six months of this year.
The short answer: it didn’t.
The longer answer is largely, as we speculated, that “cash collected” did not mean what we understood it to mean. While the UK’s largest listed law firm said that it collected £220m in the period, it turns out that only £177m of that total was cash available to be used as it sees fit. Read more
A few more things to ponder following the results for Quindell last week, beyond the cash situation that we have already covered.
One is the difference between what the UK’s largest listed law firm has assumed it will get paid for industrial deafness claims it is pursuing, and what UK insures have set aside to pay such claims.
Consider these thoughts from someone insurance minded who attended the Quindell analyst meeting: Read more
The cash situation at Quindell is important, hard to follow and weird all at the same time. The revenues that the group reports are largely promises of cash at some point in the future.
So our recommendation to those interested in the UK’s largest listed law firm is to pass over the commentary (don’t worry, we’ll be coming back to it) and turn straight to the balance sheet and cash flow statement. Read more
Quindell, the UK’s first large listed law firm that started life as a country club before expanding into telecoms, technology, insurance and law, is unusual. Indeed, the company presents risks that we suspect investors, accountants, directors and regulators are unused to thinking about.
One of those for auditor KPMG to ponder is revenue recognition, something we explored in a previous post.
Another is “under-settlement risk”, which leads to a fundamental question: can Quindell ensure that it does the best possible job for its clients while growing at a breakneck pace and meeting promises to stock market investors? Read more
Everything is on track, according to Quindell.
The Board reports that the Group has met all its key performance indicators for July (cash conversion, adjusted EBITDA and adjusted EPS)
On the cash flow front the month was one of operating inflows, as defined by Quindell. Although the statement also mentions one wrinkle:
Certain contracts being restructured to ensure the optimum return on cash resources but both profit and cash guidance are not dependent on any upside from these initiatives
Two Quindell related pieces worth reading on Monday. One is the FT story on the deal with the RAC to put tracking devices in cars, where plans to revolutionise insurance have run off track:
Quindell and RAC announced their joint venture Connected Car Solutions in April, with the aim of installing more than 2m black boxes at a rate of 50,000 per month, starting from July.
However, installation of the so-called telematics devices in consumers’ vehicles is yet to start, and talks about restructuring the tie-up have stalled, said people familiar with the project.
On Friday we explained how Quindell sees the market for industrial deafness claims as a big source of growth. What that also highlights is how the group is now in very large part a listed law firm.
That characterisation matters not just because it is different to the way Quindell described itself in its trading statement on Monday, as “a leading provider of software, consultancy and technology enabled outsourcing”. It matters due to the way revenues and profits are accounted for at law firms.
The key aspect to understand here is something called “work in progress”. As a law firm works for a client on a case for which it expects at some point to get paid, when does it recognise those fees? Read more
Quindell Plc (AIM: QPP.L), a leading provider of software, consultancy and technology enabled outsourcing in its key markets, being Insurance, Telecommunications and their related sectors is pleased to provide a pre-close statement and trading update for the six months ended 30 June 2014.
More on the numbers in a moment, but a new non-executive director arrives as well, David Currie, former head of investment banking for Investec. Read more
There is a bull case for Quindell, the country club which founder Rob Terry has turned into a full service legal and technological insurance conglomerate: the deaf.
Claims for industrial deafness, it was explained at a recent investor teach-in, are the next big growth area for legal services. Perhaps it is, although some might be surprised to discover that a company billed as “a provider of sector leading expertise in Software, Consulting and Technology Enabled Outsourcing” expects to make big profits from personal injury suits. Read more
At the heart of the debate around Quindell, since it came under attack from Gotham Research, are a few simple questions. How was the Aim listed business built; are there inconsistencies in the accounts; and where does the group really make its money?
In pursuit of answers there are the accounts and presentations the company has published. There is the dossier from Daniel Yu’s short selling outfit Gotham Research. And there is the company’s long rebuttal.
We’re going to have a look at them and, in an attempt to work out what is going on, pick out some of the details where further clarity and context might be helpful.
First up: Legal Services. Read more
Gotham City Research, after besting Gowex in a mere week, has decided to thank the Spanish people for their support, and address investors, doubters, haters and indeed all those who care about short selling and fraud. While quoting, of course, Batman:
It is not who we are underneath, but what we do that defines us. Read more
Quindell founder Rob Terry has relinquished the executive part of his title, but will remain chairman of the company he has built from a country club into a collection of businesses related to insurance claims.
Also, as previously announced, the company will undertake a 15 for 1 share consolidation at 6pm on Thursday. What happens if you own a number of shares that doesn’t divide by 15? Funny you should ask. Read more
Those waiting for the next piece of research from one of Quindell’s house brokers, Canaccord Genuity, will have to wait quite a bit longer.
The analyst covering the stock, Kevin Ashton, is on leave for personal reasons at the suggestion of the company. Read more
So far as we can tell, Quindell sells software and provides technology based outsourcing of some sort to insurance companies, as well as a bit of telecoms services.
In response to the attack by short sellers Quindell has instructed its learned friends to take legal action, and published a detailed rebuttal. Read more
The presentation on Quindell by Gotham City Research, which the company has rejected as defamatory, is a long piece of work with plenty of screenshots of the source material quoted.
One such screenshot, on page 36 of the document, is curious for what it might indicate about the construction of that presentation. The purpose is to highlight the author of Quindell’s 2012 annual report, but note the file location.
On Tuesday morning AIM listed Quindell plc was a “technology enabled claims outsourcing business”, whatever that is, worth £2.4bn.
Then Gotham City Research announced an initiation of coverage on the company with a target price of 3p and, well… Read more