QPP - auditors vs management
Today's update from the company re the accounting practices and cash generation looks slightly ominous in my view.
"The Independent Review is ongoing and has taken longer than originally anticipated given the high level of corporate activity of the Group. Advice in relation to the Company's main accounting policies (in particular revenue recognition in the Professional Services Division) is being further considered and no conclusions have been reached."
A few thoughts
1. "Is being further considered and no conclusions have been reached" reads to me as there is a disagreement between independent auditors and the Company
2. Revenue recognition issues = recognising revenues too quickly. Therefore dont believe the the stated revenue figure (which we didnt anyway!). So how would a prospective buyer due its due dilligence? With a massive pinch of conservatism I guess, but the price of disposals doesnt tend to go up after these issues are further highlighted
A couple of other thoughts re the disposal to Slater and Gordon of the Professional Services Division.
Slater & Gordon (SGH:ASE) is an Australian listed law firm. Trades on 21x PE and has a mkt cap of A$1.5bn = £750m . In 2012 they acquired a UK solicitor firm Russell, Jones and Walker for £54m (in the process raising equity of £30m) and have stated they are looking for more UK acquisitions.
Maybe the company is willing to use its highly rated paper to acquire in the UK, but the size of the acquisition, if Quindell is to be believed, will be for Quindell to sell its Professional Services division for more than its £430m mkt cap. Thats a pretty chunky acquisition on a relative size basis.
having said all this I dont think QPP could have released its statement to the market if it was not factually true, or David Currie (ex head of Investment Banking at Investec), who should know his way round the City Code, would face censure....
Personally I take the negative tack - revenue recogition issues, delays in findings etc are never good.
Happy Friday....
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4 comments
A prospective buyer will hire an accountant and do reports for the last 3 years... but it would take 3-6 months.
Some other thoughts are also could be found here: http://intwits.com/uk/stock/QPP/
Imo the accounting policies should be simple to adopt/identify - the fact that they are not speaks volumes
I too would avoid
I avoided this share in the past because
1. Some automotive insurance industry management teams told me QPP was v aggressive in its lead farming.
2. Someone I trust told me the accounts were less than clean
3. Management has puffed up other investments eg Innovation Group
4. Many acquisitions in a short space, financed mainly via issue of new equity such that that the shares in issue went from 7m in 2010 to 350m in 2013
5. When I read and reread the RNS releases there was so much hyperbole that I did not feel this is a company that is rational and considered
take this one example regarding the RAC contract first announced on 7th April 2014
"Potential for Largest Telematics Rollout Globally.
Quindell Plc (AIM: QPP.L), the provider of sector leading expertise in software, consultancy and technology enabled outsourcing in its key markets, being Insurance, Telecommunications and their related sectors is pleased to announce that it has signed the world's largest telematics contract to date."
There's more and its all almost breathless in its tone
BUT then on the 2nd September 2014: this announcement
"Due to market conditions beyond the control of either Quindell or RAC, the parties have concluded that it is not the best use of capital for either party to finance a free telematics roll out to consumers as initially planned. It is now in the best interests of both parties to restructure CCS and for Quindell to acquire RAC's interest in CCS and continue their strong working relationship both in respect of existing contracts and in the future."
Conclusion
In investing were are always learning. I have made some major mistakes in investing including losing money in Langbar. Google it and chuckle! I can now, but at the time it was embarrassing (and still is) and financially painful. However its best to make mistakes early in one's career. I dont want to make those mistakes again. So when I see these behaviours that I have listed above I think "thank you very much, but I'm out"
It may well be cheap now, but for me its an AVOID
The tone of this seems very different to the RNS on Monday, specifically in relation to the Slater & Gordon discussions - the Monday RNS seemed fairly pointless as there was nothing tangible in it