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By Tom Winnifrith | Wednesday 18 June 2014
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
One of the reasons that Quindell (QPP) had its application for a main market listing canned by the UKLA was that its business had changed so quickly. We are still waiting for Quindell boss Rob Terry to tell us ALL the reasons for his regulatory rejection. But the speed of change at the main “profits” generator Quindell Legal Services is breathtaking. Numbers presented to City analysts yesterday leave me utterly baffled. I am, of course, thick as two short planks - perhaps a Bulletin Board Moron might care to explain it all to me.
Back in August 2013 Quindell claimed that its average fee in QLS - which then dealt overwhelmingly with Road Traffic Accident (RTA) claims - was c£2000. The Insurance Times said that the industry average was just over £1000 but Rob Terry is a gifted man and so when he accrued income ( i.e. booked revenue yet to be invoiced but which he expected to invoice) at the higher level who were we to doubt him? KPMG has signed off on his assumptions and so I accept them all..
By early this year QLS was claiming an average fee of £3650 while elsewhere in the industry fees were falling. I covered this in detail HERE.
And so yesterday QLS held a City presentation at which it for the first time mentioned that QLS was in H1 2014 only spending 80% of its time handling RTA claims where the average fee is it admits £2,124 – twice the industry average – but was spending 20% of its time on “industrial deafness claims” where it is making nearly nine grand a pop so giving a blended average of £3,650. Shimple…so why the hell did Mr Terry not mention this before?
It gets better. Industrial deafness is the new whiplash. Claims are all handled outside The Portal so fees appear unlimited. One suspects the Government will change this. Indeed I chatted to the Association of British Insurers today and it is collating data on this issue. It was the ABI that got the whiplash bandwagon stopped (with a consequent slashing in fees that legal forms could charge) and you can bet that industrial deafness will be next.
Pro tem QLS now plans to switch its focus so that in H2 6,000 of every 15,000 claims it handles (its monthly load) will be industrial deafness so pushing average fees up to £5000 as industrial deafness claims are being booked at a revenue of just over £9,000 per case. This is a pretty dramatic change in strategy with a virtually new business now set to generate 75% of “profits” at what is the largest Quindell division. Rob kept this shift a well-kept secret did he not?
No wonder bulls were claiming that earnings forecasts of 4p per share look tame given that Quindell will be handling industrial deafness claims at an annualised rate of 72,000 a year.
Oh, Hang on Henry what was that you said?
Oh. The ONS Labour workforce survey? The largest survey of British workers in the land says that there are 20,000 workers each year who suffer from industrial deafness. Yes you read that number correctly - see HERE.
Before folks bang on about clearing up a vast historic backlog, the rules state that you must lodge a claim wthin three years of losing your hearing so folks who went deaf any time before 2011 cannot now claim.
However, there has been a steep increase in the number of folks trying it on with the “new whiplash” encouraged by an army of ambulance chasing no win no fee lawyers. In 2013 the number was 35,000 but almost half of those folks drop out very quickly in the process when their claims are shown to be bogus. I refer you to an article on this subject HERE.
But Rob Terry is telling us the he will be handling cases at an annualised rate of 72,000 a year from H2 this year. I am really confused by this. One bull of the stock said that Rob will help to grow the market by finding new claimants. But the growth in claims in recent years has been driven largely by claimants who will make nothing for their lawyer as they are bogus and will drop out quickly. I refer you again to the ONS statistics on the actual number of REAL claimants which must surely cap the size of this market?
Maybe there is a vast untapped market out there which Quindell can move to almost monopolise, squeezing out all those ambulance chasers. It could be that ONS data based on massive workplace surveys is just wrong and hugely underestimates the problem and that Rob Terry has picked up on this. ONS Data is usually viewed as very reliable but what do I know?
I attempted to ask Quindell why it thought the Government data was so massively wrong and also if it felt that this niche market would suffer a whiplash type reversal in a few years in light of my chat with the ABI. Quindell declined to comment.
Maybe this is another question for Rob Terry at tomorrow’s AGM? Why do you think ONS data is so massively wrong?
I might also ask about the cashflow implications of going into a business area where lead times will inevitably be even longer than RTA?
I would also like to know what net cash is set to fall to as we enter Q3. The word on the street is £15 million (a fall of £125 million or c£20 million a month since Christmas). Perhaps Rob could enlighten me on that matter at the AGM as well?
Questions, questions, questions
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