Owning shares in Quindell is like a trip to the Rodeo but is it all bad?

Quindell (LON:QPP)  has always been an exhilarating share to invest in due to its disruptive nature and complexities that take time to understand, the Quindell land grabbing strategy has achieved so much already since I first invested and comes with considerable potential and history dictates a regular supply of positive news flow from this disruptive company.

 Quindell (LON:QPP) are currently traded on A.I.M. in the UK under Epic symbol QPP and are seeking UK Full Listing which the company have confirmed via various communications to shareholders via email is on target for June 2014, the following is a direct quote from one of the aforementioned emails 

“The prospectus has already been confirmed as being submitted but yes I can again confirm it has been. If there were any changes to the listing process it would be announced until such time you can assume, as we do, that we continue to target June”

 It is expected the company will be added to the FTSE 250 anytime after inclusion to the main listing.

Quindell shares are also traded on OTC under the symbol QUPPF and in France under the symbol M6F, Quindell directors have repeatedly advised they are considering a full US listing and they have attracted institutional investment from the United States of America, this was confirmed to be 16% prior to the investor road show in April 2014 in the US.

 

US funds and institutions invested in Quindell include investing giants like Fidelity, Aegon, Blackrock, Oppenheimer, River and Mercantile & Merrill Lynch, all of these institutions have carried out their own analysis and due diligence and they all have one thing in common, they have seen the potential in Quindell while listed on AIM the wild west market which is regularly described by one of Quindell most vocal detractors Tom Winnifrith of Shareprohets & ADVFN as “Aim Cesspitt”.  As a UK based private investor I thought the Wild West seemed a more fitting description of the UK Alternative Investment market (AIM) and a little less confrontational than Tom Winnifrith’s description of this market, I am sure private (retail) shareholders in Quindell (LON:QPP), Blinkx (LON:BLNX) and Globo (LON:GBO) would agree and relate holding these AIM shares as a very bumpy ride not too dissimilar to those experienced by Rodeo riders.

Quindell was subjected to a series of reported short positions above the reporting threshold of 0.5% as are many companies on a daily basis, the latest position as detailed below data courtesy of the FCA daily list of shorts.

 

After each of the published shorts were in place it has become a popular Bulletin board conspiracy theory that the short positions preceded or coincided with a 74 page document which was highly sensationalized document rehashing QPP’s historical “red flags”, GCR chose to neglect to mention any of mitigating factors, furthermore the recent positive history or current cash balance’s of Quindell were just ignored, this report was produced by an anonymous self advertised research firm called Gotham City Research which they introduced to the market via Twitter on the 22nd April 2014.

Gotham made it clear in the document the intended to profit should Quindell’s share price decline, the rapid annihilation of Quindell share price took less than 30mins, during this time I tried to read and take in the detail in the report, after a further 2 hours of reading a cross referencing I personally concluded that I had nothing to worry about, I was genuinely surprised by the negative share price reaction in a matter of minutes to a poorly constructed and presented anonymous 74 page blog, how could have people read it and reacted so quickly to make the decision to sell, it would appear a waterfall effect happened as early sales reacting to the report lowered the price hitting stop losses and the alleged short selling by GCR helped it on its way south triggering even more stop losses and so on and so on. To many private investors used leveraged products like CFD’s and Spread bets with inadequate knowledge of how they work until they got a margin call and many lost all their monies, the recent short attack was so successful due to leveraged products and stop losses which was a thing of beauty to those that watched the price fall live, AT after AT all going lower and waterfall of stop losses kicking in. Whilst this is not something I would like to ever witness again.

The Gotham report was fundamentally immaterial considering, the cash value of Quindell's contracts with well-known business partners like the RAC and Direct Line Insurance (LON:DLG), with £150m (GBP) in the bank and increasingly positive cash flow the fabricated financial risk to the company is non-existent.

 

GCR have remained elusive with no author willing to put his name to the document, or any formal contact details for GCR.  Previous attacks against other listed companies by Gotham have been commented on by Daniel Yu who is allegedly linked to Gotham according to the Financial Times, yet on this occasion he has remained silent which history dictates is not his normal custom and practice.

 I offer no further comment other than it appears suspicious and a shadowy world that private investors have no real understanding, many private investors with genuine concern have raised their issues with the FCA and SEC, many have also raised issues with their local MP’s surprisingly with little or no response when circa £1 billion was wiped off a UK companies value.

Many are disgusted by what has recently occurred with Quindell and other AIM stocks, the UK government has recently introduced measures to attract more investment in AIM by the removal of stamp duty charge, many private investors claim these attacks have put them off investing in this market, without greater regulation of AIM this is a trend that will continue.

 

The timely and official response was a 12,500 word rebuttal issued by Quindell’s board and Gotham have failed in the subsequent week to react, the rebuttal has been useful for those that have taken time to read it and it’s very in-depth and informative.

 
The company has dealt with the scam by a blogger very well in my opinion, they have not buried their heads, they have provided confidence by all buying shares, they have gone on to renew contracts and concentrate on running the business, how many times does the private investor have to be told Cash is improving and if anyone did have a worry on Quindell this was the last remaining one, but Quindell solved it by raising £200m they needed to fund acquisitions and working capital "SIMPLES" to coin a phrase from the insurance industry.

 A bulletin board user with access to the Astec Terminal confirmed that the cost to borrow Quindell stock stands at 11%

“11% borrow for QPP is very large, right this minute it costs 20 times more to borrow QPP stock to short than it does to borrow Pfizer stock! and for those that can't work it out, Pfizer is a short target due to it's very large bid for Astra Z”

Whilst I have no way to validate this statement, I have read the posters reports and concluded he speaks from a position of knowledge. To me this suggested that shares in Quindell are in short supply and this appears to be backed up by lower than average volumes in recent days. Given that those with short position need to repurchase the shares to return them to the original holders a significant number of shares will have to be repurchased at a minimum its 5.16% circa 320m shares to cover the declared short positions but it has been suggested it could be as high as 10% meaning 610m shares needing to be repurchased.

 Where will all these shares come from?

 I have always monitored the shareholding positions in Quindell (LON:QPP), I have never claimed to be 100% accurate and my data will always lag behind reality as my sources like Funds library, Morningstar, Digital look and the FT  to name a few have to recover the data first and some investors like Polygon have not publicly declared their holding, however as I remain a constant and this helps identify the overall trends.

Remember again it will never be 100% correct or 100% up-to-date, as you rely on the following

1. Me to get on with it and check all the sources and update and then share my research
2. Funds and ii's notifying timely
3. My sources to then update

Please remember this is my research for my personal use, I chose to share it to hopefully give a clearer picture since the 1st short last year to anyone with an interest in Quindell.

 Prior to the bear raid the shareholding data according to my research stood at

 

The data today after the bear raid now stands according to my research at

** US ii holders is declared publicly at 16% by QPP, only 11.65% located through my research to date.

 

From my data the overall striking trend is private investors share holdings have reduced from 23.4% to 13.97%, so it begs the question again where will the funds that are short get the shares they need to purchase to close their positions? If they have not already covered these positions then is appears on the surface as inevitable with the Quindell shares in high demand and in short supply the price will raise the price to entice sellers to meet the needs. Additional pressure on the supply of Quindell shares is expected as they hit the main index with tracker fund purchasing.

Having directors interested firmly in line with private (retail) and institutional interests is vital for my confidence when investing in a high growth company during the establishment land grab stages, as always Quindell’s directors did not disappoint they made a clear a demonstrable statement in not only the swift and comprehensive 12,500 word rebuttal but they each showed their personal confidence in Quindell, every Director put their tax paid monies to increase their personal shareholdings in Quindell after seeking special permission from the FCA to purchase during a closed period due to exceptional circumstances. Furthermore several P.D.M.R (Person discharging managerial responsibilities) also demonstrated confidence and made purchases. I have detailed the current positions below; according to public record no director of Quindell has sold a single share.

 

 

In the short-term bulletin board propaganda and rumours either good or bad relating to the share price are best ignored. It is so easy to get misguided or even worse persuaded to sell or buy your holding by chatter and misinformation on bulletin boards and unregulated share news site and tipsters websites and anonymous blogs. Many bulletin board users create their own stress by watching and commenting on every minutiae movement and in my eyes that demonstrates their contunued nervousness.

When the Quindell is ready to announce price sensitive information and an example contract wins or renewals, cash generation, main listing update/timetable and inclusion onto the FTSE250 league etc, they will as they always have done, be very professional and distribute news via RNS, wake up and smell the coffee, in the near future you will just have to get used to the share price yo-yoing and being unstable as this current situation has been attracting visiting (HOT) monies that will dip in for short-term profit.

My mantra when Quindell was subjected to a short attack in 2013 was to stay long and top up at regular intervals, I followed my own advise then and I continue to follow this strategy today, I am fortuitous and have amassed a significant position and have never been in a loss position due to my diligent research and fortuitous timing of purchases.

 

My mantra is to research and invest long term. Hold and top up when you can. On a risk reward basis can anyone see any better opportunity in the market today, who else can provide an all encompassing service to the insurance sector and provide savings in the region of 25%, Rob Terry is picking his customers for now, once telematics and its high margin cash positive nature start to flow from US/Canada/Europe and beyond it is my belief Quindell will then fully establish the outsourcing model in US / NA, the UK work to date is minutiae, the US/NA are uncomprehendingly large compared to what we Quindell achieved in the United Kingdom.

 

Outstanding performance to-date

• Q1 Trading Statement Wednesday 16/4/2014 Highlights
• Quarter 1 Gross sales of £162.9 million versus only £167.3 million for the whole of the 1st Half Year for 2013
• Q1 Adjusted EPS1 of 0.82 pence versus only 1.1 pence for the whole of the 1st Half Year for 2013
• Previous market guidance for Q1 Adjusted EBITDA £50+ million
• Q1 Adjusted EBITDA of £65.9m versus (H1:2013: £54.0 million) AMAZING GROWTH 
• Q1 Adjusted EBITDA margin of 40.5% (H1:2013: 32%)
• Continued positive trend of operating cash flow ahead of guidance
• Momentum in Collaboration Model uptake continues expectation of 75% adoption
• Full year cash generation market expectation now anticipated to be exceeded
• Cash at 31 March 2014 of circa £150 million post acquisitions and investments
• Initial dividend paid
• Last RNS that April was also ahead on all Key performance indicators.

I personally remain a resolute holder of Quindell shares, and gain a lot of comfort from KPMG having signed off the Audit  and clients like / Aegon / Direct Line Insurance (LON:DLG) / Scottish Equitable / Ageas (UK) Ltd / Allstate Insurance Company / Aon Plc / £AV / AXA / Bulefin / Canadian Automobile Association / Chubb Group of Insurance Companies / Citroën / Endsleigh Insurance Services Ltd / Gore Mutual Insurance Company / Honda /  Legal & General (LON:LGEN) / Hasting Insurance Services Ltd / Old Mutual Plc / Polygon / Peugeot / Prudential / RAC / Renault / Royal Mail (LON:RMG) / RSA Insurance (LON:RSA) / Swinton Group Ltd / Zurich Insurance Plc to name a few.

All of the above organisations have faith in Quindell as a result of their audits, due diligence and the fact they combine to spend with Quindell (LON:QPP) is expected to be over £1bn GPB sales in the 2014 year and forecasted  to be over £1.5bn GPB sale in 2015, currently this equates to Quindell dealing with 1 in 3 insurance claims in the UK speaks volumes.

 Lets not forget the following funds and institutions invested in Quindell have also done their research and diligence.

 
AXA Life Europe, Merrill Lynch International, Investec Asset Management, Fidelity Management & Research,  M&G Investments   Blackrock, River and Mercantile , Eagle Asset Management, Russell Investments Canada, Russell Investments Japan Co, BNP Paribas Investment Partners Lux, Allianz Global Investors Europe, Vanguard Investments Australia ,Allianz Nederland, Ringturm Kapitalanlageges, iShares, Pharus Management, Prudential, Principal Diversified Intl, Jyske Bank,  ClearBridge International, Legg Mason, City Financial Investment Company, CATAM Asset Management , Valiant Bank AG, Thistledown Investment Management, Heptagon Capital, Friends Provident, Bellevue Asset Management, Techinvest RAM Active Investments, GLG Partners, HBOS Investment, Frankfurt Trust, RBC Regent Fund Managers, Smith & Williamson, Barrow Hanley Mewhinney & Strauss, Candriam Luxembourg, Dexia Asset Management, Reyl Asset Management, Van Eck Associates Charles Stanley, TIAA-CREF Investment Management, AEGON Ireland, Ignis Investment Services, Sanlam Investment Management, FPPE LLP, Slater Investments 3G Capital Management, European Wealth management (Aventus), Algebris Investments, Oppenheimer Global, AIG Ireland, Kames Capital, Marlborough Fund Managers , Aegon Asset Management Services, Premier Fund Managers , J.P. Morgan, Insight Investment Mgmt, River and Mercantile Asset Management, Octopus Investments, Front Street Capital, Principal Life Insurance, Dorval Finance, Hargreave Hale, F&C Asset Management, Jupiter, Schroder, Lloyds TSB Investments, Artemis Investment Management LLP, Standard Life, Miton Capital Partners Cazenove Investment Fund Management, AXA Isle of Man

Despite the growth to date in my personal opinion is Quindell are at the foothills and I remain a buyer, as a marmite share I expect to be berated by the detractors, it will be for you to do your research and make up your own mind on Quindell.

 

Regards

 

 

Steamy