Ann: Market Update, page-33

Quindell PLC: A Country Club Built On Quicksand


Gotham City Research initiates coverage on Quindell PLC, with a price target of 3p/share (92% downside)
SUMMARY

• 42%-80% of Quindell’s profits are suspect, as we are unable to reconcile the whole with the sum of the parts.
• Quindell was little more than a country club until 2008/2009, yet QPP somehow began reporting Microsoft/Google-esque profit margins in 2010/2011.
• 26%-43% of Quindell’s 2009 and 2010 revenues came from Clickus4.com, a subsidiary owned by CEO Robert Terry.
• 41% of Quindell’s 2011 revenues came from an undisclosed related party (controlled by a QPP executive).
• 10+ acquisitions lack economic substance. Several of the acquired companies are little more than paper companies.
• QPP’s largest telematics customer is itself (via subsidiaries Himex & Ingenie), accounting for 61% of 2013 revenue.
• 99% & 80% of Himex’s 2012 and 2013 balance sheets are seriously deficient (Himex is QPP’s largest acquisition).
• Former executives allege Himex/Navseeker lied to them about its financial state and that in effect they were operating a Ponzi-style scheme.
• 2011-2013 accounts receivable are between 86%-231% of revenue, while deferred revenue only 1%-2% of revenue.
• Nearly all of CEO Terry’s £11 mm personal investment into Quiindell was used to build Quindell the country club.
• No free cash flow and negative operating cash flow.
• Quindell fails to explain how its personal injury business complies with Lord Jackson’s reforms & referral fee ban.
• The Chairman of the Transport Select Committee, Louise Ellman recently initiated a probe to determine whether ABSs are used to side-step the Jackson reforms.
• 3 auditors in 3 years, since 2011.
• Quindell’s shares are worth no more than 3p/share.
• QPP shares would qualify for a de-listing if the shares were trading in US markets.
• When asked, Quindell refuses to answer simple questions about its business.