Quindell - Short Interest Revealed:

Over the past couple of days I've received a lot of emails regarding the uncovering of Roble S.L - who now transpire to actually be a pawn in Tiger Global's box of chess pieces. This post is effectively the culmination of the interesting information in these various emails, which basically require no further input at my end, so I won't be analysing anything. Point number two is the most important one to look at, I hope you enjoy the show!


1. An image showing the proximity of Tiger Global's New York office, to Quindell's New York office:

2. Putting some pieces together:

• Now, Gotham City Research stated in their paper that they went to the QPP new york office, as it's a three minute walk away from Tiger Global's office, suggesting that Gotham City Research potentially are Tiger Global.

• Coatue, who also have a short on Quindell, also see to be Tiger cub members are also just around the corner.

• QPPSAG have discovered Fidelity are linked to a fund called "Gotham", which invested in Quindell and we know they lent the shares in Quindell out (NB: I [The Masked Stock Trader] have no direct proof of this point, so take do your own due diligence, etc).

• The Fidelity Fund called Gotham lent shares to Robel SL based in the Cayman islands and owned by Tiger Global.

• Gotham City research did the damming article and claimed to have walked to QPP offices.

• Coatue are three blocks away from Tiger Global and are also a tiger cub hedge fund.

Pinched from the FT.

Main players:

Fidelity, Tiger Global, Roble, Gotham and Coatue.

Sub-Players:

Tom Winnifrith, Lucien Miers, Dan McCrum (rumour is he was being paid by Ennismore to write a series of negative articles), Paul Scott, Richard Crow (cockney rebel) and an army of internet trolls spamming the public boards with lies.

3. Gotham City Research and Delaware:

The entity was formed on 13/2/2013 (Incorporation Date).
It is registered as an Limited Liability Company LLC entity and not a Corporation. 

Some point to note are:

1. Delaware have no state taxes for LLCs, so many people choose to form new companies in Delaware for this reason, even if the owners are resident in another state.

2. The LLC provides a personal liability shield in the event the entity runs ups debs which it cannot pay. 

3. The LLC has to re-register every year with the state. It has to pay $250 of taxes to do this. They have to pay this on or before June 1st each year. 

4. An LLC is not required to file an Annual Report. 

5. It is possible to purchase online the STATUS of this company for $10, but no other information is available.

6. A corporation would have to submit annual accounts and pay a franchise tax. As Gotham are an LLC they do not have to do this.

7. The Resident Agents Address is the address you sent your LEGAL PAPER work to in the event you want to SUE them. They are the official delivery address for all LEGAL paper work, tax information etc. The Registered Agent will be the person to receive the s**t storm of prosecution paper work that will no doubt be flying across the atlantic in the next month or so. GCR cannot say they have NOT received any paper work as delivery to the Registered Agent is exactly the same as delivering to GCR. It is the responsibility of the registered agent to forward on any paper work.

4. Roble's Cayman Island Registry:

5. Roble and Coaue:

Just reading about Chase Coleman (Mr Roble) on Bloomberg and he is mate with the guy who runs Coatue both trained under the same man no collusion eh? "Coleman’s fund is one of three Tiger cubs that made the top 25 in the Bloomberg Markets ranking. Philippe Laffont’s New York-based Coatue Management LLC ranked No. 10, with a return of 16.9 percent. Laffont, who worked for Robertson at Tiger before starting Coatue in 1999, also invests in technology."

Quindell - A Look at the H1(2014) Results, Cash Flow and Rumours.

Quindell's 2014 H1 results were (in my humble opinion) excellent! 

Now, that's not a statement I would make hastily about any set of results, but once again Quindell have managed to pull out another great set of results against a backdrop of wide negativity regarding the stock and aggressive shorting tactics from hedge funds. 

For those interested the results can be found here: 

http://www.quindell.com/images/uploads/irdownloads2014/20140821_IR.pdf

I'm going to try and discuss a few things regarding this set of results, including, but not limited to:

1. Cash flow, its common misunderstandings, how we need to look at it in the case of Quindell and any possible solutions that the company may employ in the short term.

2. What this set of results means for common investing metrics (PE ratios, etc). 

3. The allegations of fraud.

As a disclaimer, I do have a long position in the stock and am a strong believer in the prospects of the company; nevertheless, this doesn't mean I wear rose-tinted glasses when it comes to analysing the company, which I think could do with a better investor relations and public image team.

1. Cash Flow

- The fist bugbear I have regarding the bearish argument regarding low cash flow, is that many people seem to talk about it in the context that it's a finite amount per half or quarter year:

This may be an incredibly basic point, but just because we know what the cash position for the company is unto June 30th, doesn't mean that the company has not made a huge amount of marginal cash flow since then. So, you see that just because we know about £85 million worth of cash doesn't mean that in reality the company presently has significantly more in percentage and real terms post results.

Now, based on this quote from page four of the results:

"Underpins our 2H operating cash flow expectations of c.£30-40m, and our 1H 2015 expectations of up to £100m"

We can clearly see that the company is expecting between £5-6.6 million pounds per month in the second half of 2014, meaning that in July and August it's likely brought in £10-12 million on top of the £85 million we heard about in the results - roughly an 11% increase since June 30th using those figures.

- Journalists seem to be focussing on the net funds of £18.9 million stated in the results, which is frankly ridiculous, because vast amounts of companies have much higher debt ratios. Look at the results from Nike or Accenture for example. 

My point here is that it's highly likely that the media has been intentionally talking about net cash flow, because it's the smallest cash related number they can see - in the grand scheme of things operating cash flow is much more important.

- My final point regarding cash flow is that Quindell is a rapidly expanding company and that people who purchased shares under the expectation that they would be able to generate huge cash flow figures in tandem with other growth metrics perhaps need to rethink their investment strategy. 

Now, Quindell have said that they're reducing their growth outlook in order to focus on cash flow, but regardless of this, the nature of growth companies is that they're initially very cash intensive. This isn't to say that businesses have to suffer from low cash flow in order to grow, but it does mean that generally if you want to see a fast increase in shareholder value you have to be prepared for a significant lag in cash flow against profit and revenue growth. 

- What might Quindell do to ease this issue in the short term?

Well, this is an idea I actually nicked from a poster called QPP1000 on the LSE Quindell share chat (I highly recommend his posts for investors who haven't seen them), which is that they may consider placing some shares to a major institution (say fifty million), this would have the effect of making them significantly more cash positive, but also increasing investor sentiment by having another large institutional name to add to the current list.

Personally, I think that the current board of directors are more inclined to focus on the business and hope that over time this will drive growth in the share price. Nevertheless, I am very pleased to see that they're pursuing suing Gotham City Reports and other bloggers for defamatory claims, which I think is a very positive sign that the company is fighting back and possibly means that they may be more inclined to view these as viable options in the short term.

2. Investing Metrics

There's a bit of a danger here in going overboard, so I'm going to try and be concise here and keep to the popular investing metrics.

- Using the adjusted earning per share figure featured in the results of 29.60p and a share price as it stands as I look at it (literally as I'm writing this) of 170p, we get a half year PE ratio of 5.74, or a full year PE ratio (if we double the EPS) of 2.87 and realistically we should probably more than double this figure as Quindell always delivers more EPS in the latter half of the year. 

I ask you, is this a sensible PE ratio for a company that has a very strong growth outlook? 

Well, in my opinion the answer is a strong "No". When you usually purchases shares in a rapidly expanding company most investors will take a higher PE ratio than normal in the knowledge that the continuation of high revenue and profit growth levels in that business will allow room for significant growth in the company's share price. 

- Next we have to look at the potential for dividends (after all this is where most holders of Quindell intend to make their money).

With a profit before tax in H1 of 2014 of £153.7 million against an H1 figure in 2013 of 39.2 million, it's clear that there is a lot of potential for releasing a good dividend at some point this year. I have already done a write up which discusses this in reasonable detail, so I would encourage people to read this post:

http://themaskedaimtrader.blogspot.co.uk/2014/07/quindell-plc-frustrating-but-stay-with.html

The fact that Quindell has a current dividend cover of over 25 times suggests to me that there's a lot of scope for significantly increasing this dividend and the fact that the company has pulled back on the growth slightly to allow cash flow to catch up means that there's likely to be much more available cash to release a strong dividend this year compares with last year's dividend.

3. The Allegations of Fraud

- The Ponzi scheme argument is the most ridiculous "de-ramp" of Quindell I have ever seen and I seriously thought that I had seen all of them by now. 

If we approach the idea that Quindell is a massive Ponzi scheme from a logical perspective, it simply doesn't make any sense. For Quindell to be fraudulent in any sense they would have to have fooled not only members of the top ten insurers in the UK (Aviva, etc), but also some of the largest companies in the world (British American Tobacco, BT, EDF Energy, etc).

More than this, they will also have fooled huge fund managers like Fidelity, AXA, M&G and Artemis, which have whole teams dedicated to doing due diligence on high growth stocks like Quindell in portfolios.

Overall, this makes the chance Quindell being a company based around Ponzi fraud very low in my opinion and the arrogance of certain other bloggers to believe that they can out-analyse the analysts of these huge institutions is laughable. 

- Secondly, we have the allegations of altering results to present a different picture to shareholders. 

This is almost as illogical, because you're then implying that the company's auditors (KPMG) would allow their name to fall into disrepute in the event that they got caught out. Considering that KPMG audit many FTSE 100 companies, I highly doubt that their likely to risk the custom of companies capitalised in the hundreds of billions of pounds to serve companies worth two billion pounds or under. 

- The RAC deal is one that I'm not overly familiar with as I bought into the company post the Gotham City Report, but again this is an issue that can be logically explained. 

We all know that the RAC have an IPO coming up and therefore will be extra-stringent regarding the dispensation of knowledge that could impact upon their performance on the IPO date and as the large company in the deal, Quindell will ultimately have to wait until the RAC give to go-ahead before they can comment on the rumours.

Also, we have to remember that issues with the RAC deal were reported by media outlets like This Is Money and the Financial Times and we all know that media outlets are prepared to spin stories if they think that people are prepared to read them. In this case This is Money said:

 "The deal between the two in its original form is also now considered unworkable, sources said," 

While the FT said:

"talks about restructuring the tie-up have stalled, said people familiar with the project."

Let's be honest, "sources said" and "people familiar with the project" are about as credible sources for information as my labrador is. This looks to me like the continued disgruntlement from the media after they were barred from the AGM and I implore trigger happy investors and traders to ask themselves if they believe a source is credible every time they read it. 

I think that in conclusion, if there are a few things we can take away from the past few weeks, it's that Quindell share holders and traders in general would do well to look at the likely authenticity of news before they trade based upon it. Secondly, current stake-holders in the company should not be disheartened by the languishing share price and remain confident and inline with the excellent results we saw yesterday and thirdly the cash flow argument needs to be seen from the perspective of a young company based on its past and future growth rates.

Quindell PLC - Understanding Institutional Investor Analysts.

Recently, I was fortunate enough that a good friend of mine arranged for me to visit a major investment bank in London. While I talked with the director of corporate finance, the subject of Quindell came up and we had an exhilarating, in depth discussion on the company.


What made this discussion particularly interesting was that we both came from opposite ends of the Bull-Bear Spectrum, with me sitting firmly with the bulls and him with the bears.


We discussed all of the major points: cash-flow, business model, Gotham City Reports, etc.


The point when we came together however was when I discussed the validity of his point about the implications of their cash-flow conversion rate (he was saying that this was the main reason why their in-house analyst was bearish on the stock), by discussing how institutional investors had significantly increased their positions in the company since the Gotham City Attack (Fidelity, Milton Asset Management, Artemis, etc).


The reason we came together on this point was because we both agreed that Fidelity (situated on the floor below us at the time I believe) are an excellent team of asset managers, but more than this have much more advanced research methods than investment banks.


Let's take a brief look at why:


1. Analyst Teams vs Analyst Lone-Wolves:

This is possibly the most important point that needs to be raised, which is that large asset management firms like Fidelity will have teams of analysts one one stock rather than just one analyst. The bank that I was visiting had one analyst on Quindell and my host said it was highly likely that Fidelity would have at least three analysts highly familiar with the stock for each sub-fund that had a position in the company.


2. Public Image:


My host at the investment bank I saw made a highly amusing point, that their in-house analyst was banned from meetings (AGMs, analyst meetings, etc) with Quindell.


This may only be a small point in the grand scheme of things, but being close to the company is essential in order to both truly understand how the company works, but also to get further ideas from the upper-management as to the onward progress their likely to make over various timeframes.


According to another friend of mine in the industry, hedge funds and asset management firms in particular are very good at not alienating themselves to firms, regardless of wether they're long or short and tend to be more tactful generally than the large investment banks are.


3. Management Stakes:


Personal stakes in the funds that they manage doesn't necessarily increase the actual level of their stock picking ability, but instead it makes certain that when these fund managers open a position in a stock that they have done their full due diligence and have covered all research bases fully.


Most investment banks will now actually trade or have any sizeable stake in the companies that they rate, as ninety percent of trades at these banks are primary trades, not proprietary trades. Even then, compared to the size of these large asset managers, the proprietary trading desks of these major investment banks are still not vast.


This means that the analysts for these major banks and brokerage firms only risk their jobs if their clients lose substantial percentages, as opposed to their jobs and a significant proportion of their net worth. Therefore, this is another prong in favour of following the asset managers rather than the investment banks and brokerage houses.


To sum up this very brief writeup, I think we can take away an albeit generalised, but pretty accurate view of the key differences between these two sides of banking world. Further to this, I personally believe that following the movements of these large asset managers is a sure fire way to successful stock picks - after all, they get paid such large amounts because they exceptionally good at their jobs and in asset management circles personal management stakes also play a strong incentive in ensuring good decisions are made. I am not saying that the rating from brokerage firms and investment banks should be ignored at all, but that I personally place the movements of respected asset managers higher than them in my personal rankings.


All the best,

The Masked AIM Trader.

The Fear Factor - Using Quindell PLC as an example.

Good afternoon traders and investors,


I've discussed before what I think is a level of spectacular value for money that Quindell offers at the moment, so I don't intend on giving anymore points to support my strongly bullish view on this stock. I am also going to ignore the manipulation theories for the sake of this article, even though in reality I think they make a sound and plausible point. I do however wish to focus on and discuss the concept of fear in the stock market, using Quindell as a my primary example. The main three ideas I'm going to discuss are points which, if acknowledged, can be used to not get sucked into selling in a state of fear, but more importantly can be used to make great trades.


1. Markets overextend expectations:


- This is not a new idea by any stretch of the imagination (in fact I nicked it from Richard Farleigh - my trading role model!), but it's a very important factor when considering the nature of stocks that are hit by a fear-mongering attacks, such as Gotham City's attack on Quindell.


This point applies both ways in trending markets too: take the Australian government bond market in the late 1980s and 1990s which saw falling interest rates from 1989-1993, causing falling ten-year bond yields from 14% to 7%.


- Stocks that are hit in this way by a fear-mongering attack (Gotham City Reports - Quindell plc) will as a result often take much longer to recover than people expect them to and a large portion of this comes down to fear in the market. In the case of Quindell the market was very quickly made aware of the fraudulent nature of Gotham City's claims, but yet the price continued to fall - a clear sign of fear in the market regarding Quindell combined with dubiously moral money management techniques (loading the bid to hold prices down, rinse and repeating by short sellers, etc).


To summarise this point: assets always takes significantly longer to recover from falls than people expect.


2. Patterns and Anomalies always exist:


- Quindell falls strongly into the 'anomalous' category at the present time for numerous minor reasons, but with the main reason being that the fundamentals of the company simply dictate a significantly higher share price than is currently being expressed by the market.


Crisis situations will regularly provide strong imbalances in supply and demand that cause great bargains to be had if your risk management is correctly followed. Take private equity for example, which always takes a big plunge when the global economy is hit (for example, 9/11 or the emerging market crisis in the late 1990s) because it's inherently illiquid and also because smaller markets are less watched by investors, meaning they take significantly longer to bounce back from major falls. The imbalance in private equity prices in the 1987 stock market crash created huge opportunities for many investors in that sector, which aloud them to yield such huge gains - in short they did their homework on the companies and saw there was a strong imbalance between the current company valuation and the true company value.


This continues on from my first point, that markets tend to overextend expectations, in this case regarding how low Quindell's share price has fallen, but also how long it has stayed so low. This is when common sense kicked in for me as a trader and since about a week after the Gotham City attack on Quindell, I have held stock in the company, because in my eyes this is simply an anomalous period for the company and one that can be profited from.


- Understanding whether you're looking at an anomaly or not requires asking oneself what comparative advantage you have against the market (obviously you must think you have some edge or you would never profit from trades and investments).


In the case of Quindell, my comparative advantage (which is the advantage of many who are strongly behind the company) is that I understand the company and have done so much research into its earning profile (please see my post on understanding Quindell and its dividends: http://themaskedaimtrader.blogspot.co.uk/2014/07/quindell-plc-frustrating-but-stay-with.html), that I believe I have an advantage in the medium to long term where the noise of short term price movements are excluded.


It's also worth remembering here that you don't have to have a huge advantage over the market to yield large gains. Take casinos for example, which rely on a very small percentage advantage when customers play roulette and other games, where on average the casino will only win 55% of the time. It's this small advantage I believe that I've got in truly understanding the company, that makes me believe I have the potential to yield strongly from Quindell, especially in this currently anomalous period for the company.


3. You're unlikely to out-analyse the analysts:

- This is pretty much stating the blatant obvious to an extent, as most people aren't full time traders, but it's an exceptionally important point when a stock begins to behave anomalously and especially when looking at smaller companies that are rarely tracked by large brokers and analyst firms.


To continue using Quindell as an example, the most recent analyst ratings are as follows:

Canacord Genuity: 362p
Daniel Stuart: 1005p


In the case of Quindell these firms have an extra advantage over the private investor because they are often in direct contact with members of Quindell and therefore simply have a greater level of information available to them to base their predictions on. Furthermore, professional analysts normally only have five to six companies to look after in their portfolio, meaning that a huge proportion of their time overall spent with these companies (at work and at home), so they're consequently always aware of the company specific updates and the further market issues that impact the companies under their belt.


With Quindell in particular, this means understanding that claims against companies for industry induced deafness have increased by two thirds since 2012 and that this will positively impact upon the company. It also means that analysts will understand that insurance companies are making a drive to increase their telematic insurance base, thus out-pricing those without the devices over the next ten years.


Therefore, I often trust the analysts strongly over a medium to long term period and I'm especially confident when two firms put out targets that correlate.



Overall, the these three ideas are points which can be used to assist when the market pricing of any asset becomes anomalous. I think that all three ideas can be strongly applied to Quindell under the current circumstances and moreover, I believe that in these anomalous circumstances it's important to regularly assess your positions and double check that your opinion remains as it was on the purchase of the asset.


Enjoy,

The Masked AIM Trader.