Shares in Quindell (LSE: QPP), the infamous insurance outsourcer (and jack of many other trades), are currently trading on a P/E of under 2, based on the City’s expectations for the year just ended in December 2014. Could a stock on such a lowly rating really be seriously overvalued? It could, and I’d argue that it is.
The thing is, that consensus forecast is out of date, and was heavily based on claims made by the company’s own house broker and nominated advisor, Cenkos Securities, and joint house broker, Canaccord, who resigned in November. And while Quindell’s ex-directors have been heavily criticized for their less-than-open approach to communicating with shareholders (like claiming they were buying shares when they were in fact massive net sellers), Cenkos has also come under fire for signing off such misleading RNS releases in its advisory capacity.
With the report into Quindell’s accounting practices and actual cash flow situation expected any day now, there are no current brokers’ forecasts available — and banging on about that stale P/E valuation is yesterday’s news.
So upon what can we based any valuation?
Asset sale
Well, there’s been some recent announcements regarding the interest being paid by Australia’s Slater & Gordon for some of Quindell’s insurance claims assets, but no sooner does Quindell issue a glowing upbeat claim about how well the talks are going than Slater & Gordon appears to contradict the optimism.
The latest was just this week, with Quindell telling us on 23 February that “…the indicative terms being discussed would imply a significant premium to the company’s market capitalisation“. That led to speculations of a £700m takeover offer, which pushed Quindell shares up to the current levels of around 95p.
But almost immediately Slater & Gordon came back with “No offer has yet been put to Quindell and there is no certainty that an offer will be put that is attractive to Quindell, or that a transaction will eventuate“. It’s a fire sale from a firm desperate for cash, and it’s naive to think otherwise.
Credibility crushed
When Q4 cash flow came in woefully below the company’s predictions, the credibility of Quindell’s management came under fire again — and nothing the new bosses have said since has done anything to restore any confidence for me. Quindell’s banks didn’t like the way things looked either, and on their insistence PwC was brought in to conduct an independent review of accounting policies and the cash flow situation.
The report is due any day now, and every day that we have to wait for news is another day that makes me think it won’t be positive — given Quindell’s keenness to publicize any scrap it thinks might make it sound good, if the board is happy with PwC’s opinions I really can’t see a good reason for why it’s taking so long for us to hear.
Too expensive
So is Quindell really the most overpriced stock in the world? If it eventually crashes to zero, then yes it is — because there is no greater over-valuation.