Quindell’s (LSE: QPP) shares have jumped today by 10%, following the company’s announcement that it had inked a five-year telematics contract with one of Canada’s top three insurers.
Surprisingly, Quindell’s shares have held onto the gains made earlier this morning. Indeed, the company’s shares usually sell-off following a bout of good news, so this support could signal the start of renewed investor confidence in the company.
More to come
Today’s news release from Quindell not only announced the commencement of the contract with a top Canadian insurer — analysts have speculated that this could be Aviva Canada — but it also noted that the company is heading into the fourth quarter with lots to be excited about. Management believes that a number of core business relationships will yield improved results during the next few months.
However, this positive update from Quindell follows a set of mixed third quarter results from the company, which confused many investors and analysts alike. For example, many analysts were surprised by the fact that Quindell’s management was no longer counting revenue as a key performance indicator, a highly controversial move.
Still, despite the doubts surrounding Quindell’s third quarter results, the company did clarify one thing — it’s now generating cash.
Cash generation
Cash generation has long been a key goal for Quindell, as a lack of cash flowing into the company’s coffers has been interpreted as a sign of earnings manipulation.
Quindell reported cash inflows of £9.4m during the third quarter, significantly ahead of guidance, which was calling for breakeven cash flow. Additionally, the company managed to pay down borrowings of £6.5m during the quarter.
But what really caught my attention in Quindell’s third quarter update was management’s commitment to unlock value for shareholders if the market continued to place a low valuation on the company. According to the statement released alongside the company’s trading statement:
“…the Board is also examining various options to generate shareholder value one of which is the disposal/demerger of assets and strategic investments by third parties.”
Quindell has various subsidiaries under its group umbrella, so a spin-off or sale of assets is always a possibility.
Recovery will take time
Overall, there’s no doubt that Quindell is attempting to change its reputation for the better, although this will take time. If management can prove that the company is really looking out for shareholder interests, then the market might start to re-rate the company.
However, it takes years to build a reputation and this is something that Quindell will have to work at. The market rewards companies that look after their investors, generate cash and grow quickly. Quindell’s growth has been explosive but until management regains the market’s trust, the company’s share will continue to flounder.