I've watched the gruesome saga of Quindell with a certain amount of prurient interest over the last 8 months. From Paul Scott highlighting it, two years ago, as a stock with a bad smell to Gotham City publishing their research note in April and then Tom Winnifrith coming out all guns blazing. I'm just glad that I've never had an investment here; it's exciting enough watching from the sideline.
While the fat lady hasn't put in an appearance yet I can't help feeling that, one way or another, we're in the end game now. So my ambition in this post is to see how far back the cracks started appearing in the accounts and decide if I would have seen them as red-flags at the time. Obviously there's rather a lot of hindsight involved but if I can learn some lessons for the future from this analysis then it'll be time well spent.
NB: In the last annual reports the issue of IFRS 10 surfaces and a consequent need to restate the accounts for 2012. I can't say that I understand all of the details but the change appears to be related to acquisitions and how and when they should be combined with the group accounts. Needless to say the impact is material and so all of my graphs include a restated column to illustrate the impact.
The Good
The profit growth of Quindell, since it completed a reverse-takeover onto AIM, has been nothing short of extraordinary. I don't know that I've ever seen a company multiply it's profits by 10x in 4 years but that's what we've got here; in fact in each half-year it has managed to equal, or beat, the prior full-year so far!
Even more impressively this growth hasn't been achieved at the expense of margins and these have actually improved over the last couple of years. So Quindell are keeping a tight hold on costs which is remarkable given the pace of acquisition and number of business areas covered by the group.
All of this has been achieved with a decent and stable ROCE (return on capital employed) which indicates that new capital…
