I've discussed before the shorting attack on Quindell, so I won't repeat myself on that front, but if anything good can have come from the attack it was that it's made the valuation metrics really look quite outstanding:
1. Dividends:
- With the first Quindell dividend awarded in 2013 of 0.1p per share pre-consolidation or 1.5p post-consolidation, the market sentiment feels like it still hasn't been able to adjust to the diverse nature of the company: Quindell is currently both a strong growth and income generating investment and to define it as merely one or the other would in the current price range be a very dangerous statement.
- With a dividend cover of 25.35 for that first dividend, it was made quite clear that Quindell are likely to take the "less is more approach" and surprise investors with better financial results in the future rather than set them up for a fall.
2. "Trend is your friend":
- There's no doubt that Quindell has been able to generate some formidable revenue and operating profit figures:
Revenue: Operating Profit:
2010= £150,000 2010= £-80,000
2011= £13,710,000 2011= £4,130,000
2012= £163,000,000 2012= £36,460,000
2013= £380,130,000 2013= £108,500,000
2014= £? 2014= £?
- I'm not going to conjure any numbers from the air to predict what the final results for 2014 will show, but if the trend continues (and there's no fundamental reason for why it shouldn't, as Quindell has been gaining custom and not losing it over 2013 and the first half of 2014) we could see some very pleasing numbers at the end of their financial year.
- Also, let us not forget this new nugget of information, which will almost certainly help Quindell to increase its next results to all time highs: Run-rate revenue forecasts from the legal services team have increased up to £900m per year in the second half of 2014 (an increase from £650m in the first half of 2014).
3. Total Assets:
- One of the many things that I've struggled to understand since the shorting attack is why the company has traded so close to the value of it's total assets. With a total asset figure of £881,480,000 in 2013 it's staggering that Quindell still only has a market capitalisation of just over £1bn.
- Most companies trade at a reasonable multiple of their total assets, but the insurance sector seems to be the odd one out in this case, where Admiral group trade at 1.22 times their total assets and Quindell currently trade at 1.13 times their total assets.
- This makes little sense to me when we consider that although this isn't an undemanding business in asset terms it's certainly not hugely asset intensive (we're not talking about mining or manufacture). Also, accountants will know that valuing uniquely placed assets (like telematics in general) can be very difficult. This means that the total asset figure we see in the 2013 accounts could in theory be a lot higher, but that in accounting terms the rules are against us (for example, football clubs can't grant a value to "home grown" players on a balance sheet, because the only way to value them as an asset is based on what someone else has previously paid for them).
4. "Cash is King":
- This has been the only consistent criticism that Quindell has attracted since its infancy and although it's lagging cash flow is not a point to ignore, even this looks set to turn around by the end of 2014.
- Cash generation is now at £500,000 per day, with forward predictions of £750,000 per day by the third quarter of 2014 and £1m per day by the year end. If this is also an underestimation (likely join on Quindell's previous estimations) then the company will be significantly cash flow positive by the end of the year at least - hardly something to worry about for long term investors.
5. Price to Earnings Ratios:
- Quindell is currently running on a PE ratio of about 8 and a forward PE ratio 4. This forward ratio of 4 is particularly interesting, because it's been made in accordance with the estimations put forward by the company itself, which as I've already said have a tendency to be underestimates. This means that in reality we could lean on a forward PE a quite a bit closer to 3 than 4.
- If we compare the current PE ratio to other standard insurance brokers in the FTSE you get a pretty interesting picture:
Admiral: 14
Aviva: 23
Direct Line 12
Esure 49
- Apart from being a bit ironic that Quindell currently has a PE of 8 when Esure has a PE of 49 even though they currently have almost exactly the same market capitalisation, what we need to take away from this is that Quindell is seriously undervalued compared to it's dividends:
-To start with, as a company that is a leader in the new and very quickly evolving sector of telematic insurance it really should be Quindell that has the PE of 49. Secondly, when the insurance outsourcer (Quindell) has a better PE ratio than it's clients (Direct Line), there's a serious valuational issue going on.
Conclusion:
Regardless of what others in the market are saying, Quindell plc is in my eyes considerably undervalued within the current price range. Adding to this, I feel that it's the nature of the company to under estimate and over deliver, meaning that overall Quindell is likely to continue to deliver better results as 2014 progresses.
We await the interim results with bated breath.
Good luck and please comment if you feel I've missed something essential,
The Masked AIM Trader.
- There's no doubt that Quindell has been able to generate some formidable revenue and operating profit figures:
Revenue: Operating Profit:
2010= £150,000 2010= £-80,000
2011= £13,710,000 2011= £4,130,000
2012= £163,000,000 2012= £36,460,000
2013= £380,130,000 2013= £108,500,000
2014= £? 2014= £?
- I'm not going to conjure any numbers from the air to predict what the final results for 2014 will show, but if the trend continues (and there's no fundamental reason for why it shouldn't, as Quindell has been gaining custom and not losing it over 2013 and the first half of 2014) we could see some very pleasing numbers at the end of their financial year.
- Also, let us not forget this new nugget of information, which will almost certainly help Quindell to increase its next results to all time highs: Run-rate revenue forecasts from the legal services team have increased up to £900m per year in the second half of 2014 (an increase from £650m in the first half of 2014).
3. Total Assets:
- One of the many things that I've struggled to understand since the shorting attack is why the company has traded so close to the value of it's total assets. With a total asset figure of £881,480,000 in 2013 it's staggering that Quindell still only has a market capitalisation of just over £1bn.
- Most companies trade at a reasonable multiple of their total assets, but the insurance sector seems to be the odd one out in this case, where Admiral group trade at 1.22 times their total assets and Quindell currently trade at 1.13 times their total assets.
- This makes little sense to me when we consider that although this isn't an undemanding business in asset terms it's certainly not hugely asset intensive (we're not talking about mining or manufacture). Also, accountants will know that valuing uniquely placed assets (like telematics in general) can be very difficult. This means that the total asset figure we see in the 2013 accounts could in theory be a lot higher, but that in accounting terms the rules are against us (for example, football clubs can't grant a value to "home grown" players on a balance sheet, because the only way to value them as an asset is based on what someone else has previously paid for them).
4. "Cash is King":
- This has been the only consistent criticism that Quindell has attracted since its infancy and although it's lagging cash flow is not a point to ignore, even this looks set to turn around by the end of 2014.
- Cash generation is now at £500,000 per day, with forward predictions of £750,000 per day by the third quarter of 2014 and £1m per day by the year end. If this is also an underestimation (likely join on Quindell's previous estimations) then the company will be significantly cash flow positive by the end of the year at least - hardly something to worry about for long term investors.
5. Price to Earnings Ratios:
- Quindell is currently running on a PE ratio of about 8 and a forward PE ratio 4. This forward ratio of 4 is particularly interesting, because it's been made in accordance with the estimations put forward by the company itself, which as I've already said have a tendency to be underestimates. This means that in reality we could lean on a forward PE a quite a bit closer to 3 than 4.
- If we compare the current PE ratio to other standard insurance brokers in the FTSE you get a pretty interesting picture:
Admiral: 14
Aviva: 23
Direct Line 12
Esure 49
- Apart from being a bit ironic that Quindell currently has a PE of 8 when Esure has a PE of 49 even though they currently have almost exactly the same market capitalisation, what we need to take away from this is that Quindell is seriously undervalued compared to it's dividends:
-To start with, as a company that is a leader in the new and very quickly evolving sector of telematic insurance it really should be Quindell that has the PE of 49. Secondly, when the insurance outsourcer (Quindell) has a better PE ratio than it's clients (Direct Line), there's a serious valuational issue going on.
Conclusion:
Regardless of what others in the market are saying, Quindell plc is in my eyes considerably undervalued within the current price range. Adding to this, I feel that it's the nature of the company to under estimate and over deliver, meaning that overall Quindell is likely to continue to deliver better results as 2014 progresses.
We await the interim results with bated breath.
Good luck and please comment if you feel I've missed something essential,
The Masked AIM Trader.
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