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....
