Those who bought Quindell (LSE: QPP) shares when ex-chairman Rob Terry was ditching them by the million should be rightfully happy about their success, after Quindell soared when the Slater and Gordon (S&G) buyout bid took us bears by surprise. But at 127p today, are the fears gone and should we be buying now?
I certainly won’t be, and I’ll tell you why…
Most investors lost
Firstly, before you think Quindell has been a successful investment, reflect on the fact that the shares are still down 80% from their peak 12 months ago, and that most investors who bought in during the past few years will have lost money.
Those who did get in during the slump really just got lucky. They had no view of any accurate accounts and had no rational way to value the company — and while I’m pleased for them, it’s very much not the Foolish way to go about investment.
Gotham City Research and other bears were excoriated in some quarters for questioning Quindell’s accounting policies and profit claims. Yet they have since been proved right, with S&G having to severely discount Quindell’s past claims after PwC had examined the books, leading to Quindell’s new management being forced to admit that the company had been too aggressive in its accounting.
I said recently I’d dine on hats and shoes if Quindell’s accounts turned out to be squeaky clean. Think I’ll have a steak.
What now?
What is there on the table for investors now? There’s the cash from S&G, with an initial tranche of up to £500m set to be handed back to shareholders from the initial £637m payment. But that, valued at around £1 per share, is already factored into today’s share price, so what would you be buying for the additional 27p per share? There’s the possibility of further cash distributions, which is perhaps attractive.
And, of course, there’s the rump of Quindell that you’d be left with after S&G has cherry-picked all the good stuff — and the mere fact that it’s being left behind by the folks who’ve seen the accounts does tend to hint at whether it might be nearer the dross end of the scale or the gold end.
The truth is, we have absolutely no way of knowing what, if any, value there is in Quindell’s remaining businesses — because there simply are no accounts available to us that are remotely credible. Quindell claims its “range of insurance related technology businesses” will have “strong growth potential“. But haven’t we heard claims like that somewhere before, from this company that had the temerity to think it was ready for a Premium Stock Exchange listing less than a year ago while “aggressively” overstating its profits?
A pure gamble
If you buy Quindell shares now with the idea that what’s left after the fire sale will bring you riches, you’ll be buying completely blind. If that’s the way you go about your investments, well, good luck to you… and while you’re here, can I interest you in some tips for the Grand National?
There just isn’t any need to take such big gambles with our investments, as there are plenty of well-managed companies out there with documented good results, good prospects, and a culture of transparency and openness.