Quindell - The Stages of Growth.

A quick post today,


Now, the idea for this post isn't original, as I pinched the premise from a bulletin board post that was emailed my way! Nevertheless, I feel that it's a good representation of where Quindell is relative to its past-self.


I'm going to begin this "story" (for want of a less patronising word) back on November 15th 2013, when news was released to the market regarding the oversubscribed placing "to fund growth opportunities" for £200m.


From here I'm going to allow the table below to express the majority of the story (these are figures that have either been plucked from RNS' or the Quindell website:

Position in Year	Gross Revenue/£m	Total Cash Position/£m
2013 H1	163.3	35.2
2013 Q3	92.1	23.3
2013 FY	380.1	199.6
2014 Q1	162.9	150
2014 H1	357.3	85
2014 Q3	200	78.9

Now, the danger here is that we forget a couple of things prior to our analysis of these figures:

1. Companies cost money to run and this constantly eats into your cash position.

2. Quindell paid off some £6.5m of debt between the H1 and Q3 results, which again, eats into cash.

3. These revenue figures aren't consistently accumulative in this table, so if a low number for one quarter sticks out you need to add it to its previous half yearly result to put it in a yearly perspective (comparing quarters and halves can get confusing if you're not switched on). 

Analysis:

1. We know there's a time lag of between 6-9 months on the majority of the contracts that Quindell takes on and this goes a long way to explain the falling cash position from the 2013 FY results onwards, because obviously the company will still have outwards expenditure in this period of lag.

2. Quindell became cashflow positive around Q4 of 2013, which means that in the next FY results (to be released in January I think) should be significantly stronger in terms of cash - especially if Quindell continue their ability to outperform their own targets!

3. To make this story easier to understand, let's pretend that the cash position in 2014 H1 and Q3 is the same (we're effectively discounting the debt they paid off). If we do this it then becomes clear that we're at the end of this lagging period and we can expect a significantly improved cash position in the next set of results (along with better profits, revenues, etc).

4. Thus, if you jump twelve months forward in your head, you can see that there's still a vast amount of potential for the company, which is simple not represented fairly in the current share price:

- With a market cap of just under £300m Quindell is currently worth less than half of the revenue it's expecting to take in the whole of 2014 (companies almost always trade a premium)! 

- When ordering UK listed stocks by PE ratio Quindell is around 38th out of all of them listed (although this is using Google's Stock Screener, which I think is a bit questionable, so I recommend you play around with it)!


https://www.google.co.uk/finance/stockscreener

Before I sign this off, I would implore people to read this explanation of the "sale and repurchase agreement", which everyone seems to be misunderstanding (possibly intentionally):

http://themaskedstocktrader.blogspot.co.uk/2014/11/quindell-loan-agreement-what-is-repo.html

All the best,

The Masked Stock Trader