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Quindell – The Two Questions about the interims a bull must ask

By Tom Winnifrith | Friday 22 August 2014


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.


I emain ungagged despite the Orwellian legal threats made by Rob Terry & Quindell (QPP). Naturally the question I want answered by Quindell was which company was the 41% customer in 2011 – was it TMC Southern?. To see why that is critical and a potential nuclear landmine for Rob Terry read HERE. But there are two pressing questions anyone still daft enough to own Quindell must ask from the interims released yesterday.

  1. What assumptions are being made about the NIHL (industrial deafness) cases, given that two leading insurers have stated that the "vast majority" of cases are fraudulent?  What success rates are they factoring in when calculating their accrued income?

    This is the single most important question to judge whether Quindell is actually a going concern and how long its cash might last given the £203 million of ID revenues booked by June 30.
     
  2. Quindell states that 80% of trade-related receivables from end June 2013 have been collected.  Given that these were whip-lash cases, now subject to fast settlement via the MOJ portal, at what point do the remaining 20%, which are now by definition more than 1 year old at least, get written off?  And how much more cost has been expended in order to bring these cases to settlement (in other words, did they actually make any money out of them)? 

These are two very simple questions. Answers from Cenkos, #QPPSAG, Canaccord, Mr 2+2 can = 5, Bulletin Board Morons etc. awaited.

Tom Winnifrith and Ben Turney have just published a new e-book, “The 49 Golden Rules of Making Money from oil, gas and mining shares” and it is now available on Amazon for £6.25 or you can order a FREE copy HERE


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More on QPP


Comments

18 comments

  1. kb,

    What do you think happened with Enron – was that fraud in your opinion or just misunderstood creative accounting?

    Enron had fantastic Year-on-Year growth and some of the biggest Fund Managers had sizable holdings in the company and were predicting ever higher SP targets…until it all came crashing down!

    Enrons accounts were fully audited by Arthur Anderson(one of the 5 biggest auditors at the time) – where did all these Arthur Anderson employees go (no doubt some were absorbed by the other accounting companies so are STILL auditing today)

    For sake of the people employed by QPP I hope it doesn’t crash but the financial numbers released do not make sense to me, or a few other people I suspect, because the SP continues to slide!

    For goodness sake they only have 2 months of cash left if the are burning £22m every month!!

    You’re sounding like the self-satisfied ‘investors’ who feel they can do no wrong (encouraging others to invest) as the SP heads towards oblivion!

    You are so far up your own jacksie and full of your own self-importance that you won’t even consider that something may (or may not) smell fishey!!

    I remember reading the same smug sh*te that punters like you posted during the tech-boom (and bust) when the companies they were promoting lost 99% of their value!

    Either provide evidence that the 41% trading company was not who TW said it was or shut the feck up!

    BTW at least TW has a wife and business, unlike you, who I suspect, who sits in their mothers basement dreaming of riches they will never have or the recognition they feel they deserve for being such a financial wizards (not)!

    Get a life- or better still get a wife to keep you occupied…

  2. The other thing to bear in mind is that the company only likes to talk about Trade Debtors – which is stuff that they have invoiced.

    However, trade debtors at £89.7m are only 16% of total debtors! So the cash collection figures the company mentions are meaningless.

    So the profits being reported by QPP are coming overwhelmingly from booking accrued income, as you’ve stated before Tom, correctly.

    So this company is now really just a huge pile of Debtors, that may or may not be recoverable. It’s looking more & more wobbly by the day – wheels really starting to come off now.

    I had been hoping for a spike up on results, so I could increase my short position around 220-240p, but sadly that doesn’t seem likely to happen now.

    The company is clearly heading for a cash crunch, so I see they are mooting a listing in USA next – i.e. to find a new pool of mug Institutions to stump up another load of cash for them to burn through.

  3. Paul

    I agree that a cash call is inevitable. But if UKLA said NO why should the yanks who lambast AIM as a casino be any more likely to allow this POS to list?

    T

  4. Kebab is correct for almost the first time in history. While i am working hard to build a sustainable business ( ie generates cash, no accruals, no profits generating merely by asset revaluations, etc) it is not one that I own.

    t


  5. drunken sailor

    Cashflow is a potential killer for any business. Now if we were dealing with a team who had a track record of managing cashflow successfully whilst delivering genuine growth then just maybe QPP would be worth a punt. The trouble is the track record is one of disaster.

    The other issue is that when you know you are going to struggle with cashflow does it make sense to waste what you have buying companies that have no value at all?

    The 2 areas of growth in the balance sheet are receivables (most of this is accruals and therefore could easily have to be written off) and goodwill which again could need significant write downs in future accounts.

    It looks to me like the growth is all imaginary and the cash is being burned on the BBQ at the country club, and the management have used exactly the same accounting tricks to cover it up before.

    A company is only really growing when the tangible assets are increasing and when profits are generated by positive cash flows.

    It is very easy to get positive cash flow for a month or 2 by not paying bills and chasing those who genuinely owe you money. They are not going to be able to chase in those who they are not even able to invoice. As soon as the cash runs out credit ratings will plummet and suppliers will no longer extend credit.

  6. Kebab ,

    if you had put some of that primordial soup in your cranium like I suggested you may have grown a few synapses by now . Instead we have to put up with Vacuum head .

    As usual your missing the point :- The business model of “hearing loss claims” is not a sustainable business model . There wont be enough cash from it in the future .

    Sell up while your shares are worth what you paid for them .

    This Turkey is going down.


  7. Dominic Cooper

    Tom, can I buy the sustainable business off you? Please? Pretty Please?

    I know you say you don’t own it – but that doesn’t matter. I’ll pay the business the consideration for buying it (as you do, as that’s all perfectly above board).

    I need it for the storage, logistics, warehousing, and international transport capabilities that a place in Clerkenwell can offer.

    Because I reckon that once I’ve bought it, it will be worth £5,000,000…. no, let’s call it £10million. Because as the sector leading provider of celtic-flavour enabled topped dough services, there’s definitely a high premium to your business. Especially if we work together to improve creative synergies. Therefore I’ll buy it off you for £30mill.

    Payment not in cash, of course, but in DomCoop PLC Shares, 30% payable now (i.e. £10mill)

    I’ll capitalise the goodwill of £10mill on my balance sheet. When we float, all the PI’s will lap it up and go on about fundamentals.

    You then sell the shares and (properly) declare a £10mill profit. You have £10mill in the bank.

    I’ll then sell you a licence to use the “DomCoop software enabled, sector-leading outsourcing service” (which is an excel spreadsheet with the words “I am rich” written in each cell). License fee, shall we say £10mill?

    You give me the money back in return, and I buy the rest of your company.

    Now my own accounts then show a “sale” of £10mil, for providing the spredsheet/ I mean software to you. So we have “assets” of £30mil (goodwill from the whole business now bought) and “profits” of £10mil, without having had to do anything whatsoever!

    What do you say Tom?

  8. KB: I see QPP’s cunning plan now, viz the mooted share back. They have taken a look in the company wallet – minus £180m net cash since last December – and decided the only way they can afford to buy many shares back, is if the SP falls off a cliff.
    Look on the bright side, KB, when the SP’s reached 3p old money -possibly even new money – you’ll be able to afford to ‘top up’ too.

  9. kb,

    So they generated £6M in July and £6M in Aug!

    However, they spent between £12m (at minimum) and £22m(averaged across previous 6 months) PER MONTH!!

    How are they cash positive?

    They are spending far more than they are generating and that cannot be sustainable in ANY business!

    Even in H1 2015 they will still need £132M (at current burn rate) so will be cash NEGATIVE to the tune of £32M

    Add to that the £44M they will need for Nov and Dec and minus the £12M they will recieve – so still £30M in deficit by the end of THIS year!!

    So by the end of H1 2015 they will be down a total of £62M and by £92M by the end of 2015!

    Just don’t understand your optimism…

  10. Paul Scott – you mention that the company only talks about trade debtors which excludes accrued income and represents only 16% of all debtors. However, the interim results clearly state that cash collected in the first half of 2014 represented approximately 80% of the value of total trade related receivables (including accrued income…). Are you trying to mislead people?

  11. Tom,

    Regarding your second question, I think you have to use a little bit of common sense to interpret what the interim report is saying, that is that the cash collection in each of the last 6 month period represents approx 80% of trade receivables (incl accrued income, excl NIHL). This gives a flavour for how much cash they are collecting. It isn’t saying that 20% of receivables at the end of Dec 12, Jun 13 and Dec 13 are outstanding. Hence it’s not possible to conclude that 20% of Jun 13 receivables have not been received by Jun 14.

  12. Dom!

    Please, IPO your brilliant new ground breaking innovative ( plus, every single superlatives there are) company asap!

    I have years of investing experience posting crap on LSE bullet boards!

    Sounds like the sort of investment I like and will make me millions, too!

  13. I bet QPP will have to start on doing compo claims for illness caused by eating dodgy Pizza soon. Tom will be okay tho as he has got a clean emporium .


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