Those of us who are old enough will remember when the Windscale nuclear power plant in Cumbria was renamed Sellafield, after a history of radioactive contamination incidents gave the place a bad name. Turning your back on an old name associated with bad times has always been a popular strategy, and it perhaps makes even more sense in these days of instant Google searching.
A new start?
After a few truly horrible years, culminating in a Serious Fraud Office (SFO) investigation into its accounting practices and the actions of its directors, Quindell has done exactly the same and is now known as Watchstone Group (LSE: WTG). I can’t blame them for wanting to get away from that tainted name, and if a company under new management is genuinely making a clean start, it can be a good idea.
But is Quindell, sorry, I mean Watchstone, really out of the woods? No, it very much isn’t.
At the same General Meeting that approved the change of name, the company reiterated its intention to hand back the bulk of the cash it got from the sell-off of its Professional Services Division, which would provide shareholders with 90p per share up front, followed by a further 10p when it hopefully gets its hands on £50m that is currently in escrow.
The court will decide
But as Quindell pointed out, the return of capital is still subject to court approval, with the date of the court hearing set for Wednesday, 16 December. Because of the likely effect on the share price, whichever way the decision goes, trading in the shares will be suspended from that date until the market opens on Monday, 21 December.
So what is the court likely to decide? Well, it will only allow the firm to hand over all that cash if it believes it is retaining sufficient to enable it to meet its likely liabilities in the future. With the result of the SFO investigation not expected for some time, and with nobody yet having any idea what obligations it might put upon the company, I think it would be foolhardy to assume the handout is going to automatically get the nod.
On top of that law firm Your Legal Friend is pursuing action on behalf of one group of shareholders, with a second group waiting in the wings — and who knows how many more might come forward should the first group win their claim? So to Quindell/Watchstone shareholders, I’d suggest you don’t plan that big Christmas party from your windfall just yet.
Not with my bargepole
And if you’re thinking of buying the shares today, at 98p, think also about what kind of company you’d be left with if and after the cash pile is handed over. Essentially you’ll have two loss-making telematics subsidiaries, Ingenie and Himex, for which there are no visible signs of turnaround yet. And then there’s PT Healthcare, which is also making a loss.
I personally see no value in the new Watchstone apart from its current cash pile, and whether investors can get their hands on it is still very much uncertain — this is still definitely one I would avoid.