As recently as Spring this year, Quindell enthusiasts were still excited about a forward P/E of under two coupled with impressive EPS growth forecasts — despite the forecasts being well out of date, produced by Quindell’s own brokers, and based on an obviously high-risk assessment of income accruals.
Little did they know that the Financial Reporting Council had been investigating Quindell’s accounts from as early as March 2014, as we finally heard on Wednesday after Quindell kept quiet about it.
We’ve now heard the results of Quindell’s accounts restatement, and they’re quite shocking — the 2013 result has changed from a profit after tax of £83m to a loss of £68m. And remember those P/E ratios? At Q3 time last year, Quindell was telling us it had achieved adjusted earnings per share for the nine months of 44.6p — but that’s turned into a 2014 loss of 56.4p!
With that amount of restatement required, I can’t help wondering who was really behind the original accounts — the Emmerdale script writers?
Serious Fraud Office
Quindell is now under investigation by the Serious Fraud Office (SFO) too, so we’ve certainly not heard the last of Rob Terry and the rest of his mates. But what are the lessons? It would be patronizing of me to spell out the obvious ones, but as so many investors were blind to them in the first place I will anyway:
If analysts publish in-depth criticism of a company’s accounts and practices and conclude that it’s all “built on sand”, try listening rather than dismissing it as dishonest — they might be right or they might be wrong, but you surely owe it to yourself to consider all possibilities, don’t you?
And when a company’s directors issue RNS releases claiming they’re buying shares when in reality they’re selling, don’t just walk for the door… run! It beggars belief that the bulls could carry on being bullish after that.
Bear in mind, too, that Quindell’s accounting policies were described by PwC as being “at the aggressive end of acceptable practice“. And think hard about whether you trust the regulatory policies of AIM if what has happened was ever in any way acceptable.
What now?
What should you do now if you own Quindell shares? The company is sticking to its claim that it will pay out a 100p per share special dividend from the sale of its Profession Services division to Slater & Gordon (and why they agreed to pay £637m for it still utterly baffles me). But I wouldn’t spend it just yet.
As the reality of Quindell’s accounting has come to light, the Slater & Gordon share price has crashed — and with an SFO investigation now underway, I’d be very surprised if legal avenues were not being considered. Then there’s the class action being pursued by the litigation firm Your Legal Friend, and I suspect their phones have been ringing over the past 24 hours.
Should the money actually be handed out, which would cost more than £500m, the rump Quindell would consist of a handful of cash-burning companies whose acquisitions are still under scrutiny, and a dwindling amount of the folding stuff.
Shares tumbling
Trading in Quindell’s shares resumed on Thursday morning, and as I write the price is already down 35p to 89.5p — which does suggest that investors are less than 100% confident in getting their 100p per share.
Anyway, I must finish today by doffing the cap to Tom Winnifrith, whose efforts have surely helped bring a speedier end to this farce — I’d be happy to buy him an ouzo or two.