Among the myriad clues that something was wrong at Quindell (LSE: QPP), by far the biggest hint was its lack of cash. While the company kept booking nice-looking increases in profits, its accounts receivable and its accruals were skyrocketing.
Never mind, insisted the Quindell faithful, the cash is going to come rolling in soon and by the fourth quarter of 2014 we’ll be making all the naysayers look foolish and laughing at the shorters’ losses.
Impressive boasts
And it was as recently as 13 October that Quindell was boasting of “adjusted operating cash flow for Q3 significantly ahead of expectations and guidance with c.£9.4m inflow compared to original guidance of breakeven“, and touting its “consistent track record of cash collection“.
In fact, we were told at the time that Quindell anticipated second-half operating cash flow of “c.£30m to £40m“, to be followed by “up to £100m inflow“ in the first half of 2015. And that was without significant reliance on its much-anticipated noise-induced hearing loss claims, which the firm said would add “potential upside” in 2015.
But very few of us were convinced by Quindell’s grandiose posturing.
And those who did still believe the story were dealt a severe blow on 8 December when Quindell released an RNS that is likely to go down in stock market folklore:
“The growth in cash receipts in the final quarter of the year has not been as significant as previously anticipated“, said Quindell.
Auditors called in
If that bombshell was not enough, the trading update went on to tell us that “…in conjunction and consultation with the Company’s bankers, advisers and auditors, PwC is being engaged to carry out an independent review” of Quindell’s accounting policies and cash generation expectations.
Those who did not read “in conjunction and consultation with” as meaning “at the insistence of” Quindell’s bankers were few and far between.
And if you still think this was a positive update and that Quindell’s professed beliefs in its own health and wealth have any value, here’s the killer:
“The Board believes, taking into account the Group’s cash reserves and continued access to its three credit facilities, that the Group’s resources are sufficient to deliver on management’s current plans.“
I see no other way to read that than as an admission that “continued access to its three credit facilities” is all that can keep Quindell afloat.
Is that a fat lady I hear?
What all this surely means is that the banks extending credit to Quindell are getting cold feet and have themselves called in PwC to check the books — I see no other realistic explanation for a company calling in an independent auditor to review its books in this way.
And if the banks don’t like what PwC says, they’ll surely pull the plug.
How long will it take? It’s hard to say, but it could easily be only a matter of weeks now.