Quindell Portfolio; Breaking up is hard to do! Holding sold
Quindell Portfolio (LON:QPP) (13.5p and 4.6% of JIC Portfolio) has issued an upbeat trading statement this morning in which it also tries to answer some of the concerns of those who are sceptical of its business model. The highlights are; It has had a 100% success rate at converting all it outsourcing pilots into on-going long term contracts, so much so that it now has visibility on volumes to meet the market's current revenue expectations for 2013. It also says that the growth rate is accelerating with new prospects referencing existing clients and thus bypassing pilot schemes.
Rob Terry, Chairman and Group Chief Executive attempts to allay the doubts of some commentators around cash flow and margins. He said:
"The Group is focused on early conversion of those relationships where the cash profile is optimal. In preparation for this additional volume, in line with its previously stated strategy, the business has from mid-February 2013 transitioned itself towards higher margin outsourcing work with a targeted EBITDA margin of 25% as opposed to pure hire or pure repair contracts where EBITDA margins were in some cases as low as 5%."
The Company will announce results for the year ended 31st December 2012 on 7th May and the Company also re-iterates its desire to move form AIM to a full listing later in the year.
Conclusion; Since hitting its high of 17.5p at the end of November the shares have been disappointing, down some 23%. Despite this fall the JIC portfolio is still sitting on a 195% return. On consensus earnings forecasts the shares are valued at 11.25x 2012 earnings for 200% growth and on only 5.7x 2013 earnings for 95% growth. This seems far too cheap to me and hopefully today's statement will encourage the market. At 4.6% of the JIC portfolio it is the 7th largest holding. Happy holder.
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Quindell Portfolio (10.78 and 0.0% of JIC). I have sold the remaining shares in the JIC portfolio and have thus booked a profit of £1556.81. Including my earlier sales in January and March, I have booked a profit of £4669.39 in total.
Regular readers will have noticed that there has been a rather exasperated tone to my more recent blogs on the Company. I have had to write regularly to report on yet another acquisition. In the end it may all turn out fine but there are concerns in the market, which is weighing on the share price, that it is making too many acquisitions and will struggle to integrate them properly. It is also being too liberal with its shares, especially at such a low rating.
I try not to get emotional about individual holdings and am guilty in this case of getting a little too involved, so whilst breaking up is hard to do I think in this situation it is the best course of action. What really annoys me is the amount of time I have spent worrying about this holding compared to my other holdings. I should have sold out completely when the chart momentum clearly turned down in the New Year.
I shall watch from afar and who knows, one day our relationship may be re-kindled!
Quindell(13.75p and 2.2% of JIC portfolio) has announced that it is increasing its holding in 360GlobalNet from 19% to 60% as well as acquiring associated companies. It is issuing 66m shares (c.1.6% of issued share capital) and a further 21m shares contingent on the business achieving £2m profit in 2013. Contingent on 360 making £10m profit before tax and operating cash flow in 2014 and 2015 a further 84m shares will be issued in each year The acquisition is expected to be significantly earnings enhancing. It "fast tracks" Quindell's expansion into the global property insurance claims market.
Conclusion: The Company just can't help itself! I'm sure all these acquisitions make sense and hopefully at the end of the day the doubters will be proved wrong. However, in the short term the Company is giving them plenty of ammunition which must be affecting the valuation of the shares. Yesterday I said "the shares look extremely cheap; on consensus forecasts the shares are valued at 5.8x 2013 earnings and 4.6x 2014. I suspect there will be upgrades to these figures with next week's results and as long as the Company can demonstrate a decent level of cash generation the shares should push on". I only have a 2.2% holding and on that valuation you would think I would be tempted to buy more but I am going to resist as I just don't like the pace of acquisitions.
Quindell (13.75p and 2.2% of JIC) has announced a £20m contract with one of the UK largest insurers which it believes will lead to further business in the future. It will be providing business outsourcing services including medical reporting and rehabilitation, credit hire and deployment of repair.
It has also announced another acquisition! Crusader is a specialist provider of full claims management services for a number of the UK's leading auto insurance brokers. Quindell is paying for it by issuing £34m shares (about 1% of current issued share capital) and up to a total of £3m of cash over the next two years should profit targets be met. The acquisition is expected to be earnings enhancing in 2013 and significantly earnings enhancing in 2014.
Conclusion: All these acquisitions I am sure make sense but I still have a nagging doubt about how all these acquisitions will be integrated and bedded down within Quindell. Nevertheless the shares do seem very cheap so I will stick with my holding but I feel 2.2% is enough!
Quindell Portfolio (14.25p and 2.3% of JIC portfolio): The Company has announced a new "material" contract with one of the UK's largest insurance brokers. It runs initially until March 2014 and Quindell describes it as "very material to Quindell's revenues and the largest signed, for the period ended 31December 2013".
Conclusion: After, for Quindell at least, a quiet first quarter in terms of RNS announcements it has hit the second quarter running with this the fifth in ten working days. I sense this will not be the last before 2012 full year results are published early next month. It's all good news of course and hopefully will see earnings forecasts for 2013 and 2014 being edged up in the coming months. At 14.25p the shares are valued at 5.8x 2013 consensus earnings forecasts for a near doubling in earnings and 4.7x 2014 earnings for 24% forecast growth. The shares have bounced strongly in April, up 34% and in my view have further to go.
Quindell Portfolio (12p and 2% of the JIC portfolio); I have today reduced the Quindell position to 2% of the portfolio thus locking in some more profit. The share price performance since the end of November has been very disappointing especially for something that looks ostensibly very cheap. However, the chart looks pretty awful and there does seem to be sustained selling pressure. 2012 Results are not due to be announced until the end of May which will hopefully silence the critics. Time for pragmatism.
I have decided to look at this afresh. If I bought a holding today, (and that is "IF" given the chart), I would only buy a 2% holding. I have therefore reduced the position to 2% this morning. (see transactions)