I’m very much one for putting my hands up and admitting when I get things wrong, and I was taken by surprise last week by a court decision to allow Watchstone Group (LSE: WTG) to redistribute cash to shareholders.
The cash came from the sale, back when the company was known as Quindell, of the bulk of its insurance business to Australia’s Slater & Gordon. The plan all along was to hand over most of it to shareholders – and, incidentally, the Slater & Gordon share price has crashed since it took on the Quindell business, so the acquisition hasn’t looked too successful so far.
Anyway, the only problem with the planned cash handover was that court approval was needed. With the spectre of a Serious Fraud Office investigation into the company’s accounting and practices under the leadership of disgraced ex-chairman Rob Terry, I didn’t see that as likely to happen.
But it has, and the firm can now go ahead with its intended payout of 90p per share, which should happen by the end of the month – so if you were a shareholder as of 18 December you’ll get a nice pocket filler.
Share consolidation
The shares were suspended on the day of the decision and have been readmitted to trading today, and you might be surprised to see the price apparently more than doubling to 166p. But there’s also been a share price consolidation, in which every 10Â of the old shares have been replaced by one new share, meaning that the current share price represents 16.6p per old share.
And that fall in value reflects the cash handout. Existing shareholders have 16.6p per old share plus 90p on its way, totalling 106.6p, or roughly what they had last week. If you buy now, of course, you won’t get the 90p cash.
But what does it mean for the company going forward?
Well, for one thing, a legal claim by a group who lost money is going ahead. Acting on their behalf, law firm Your Legal Friend is seeking £9.4m, claiming its clients were misled by previous Quindell accounts filings – those accounts were restated in August, turning previously claimed profits into hefty losses. Should this claim succeed, there will almost certainly be others to follow. Your Legal Friend already has a second claim from others in the pipeline, saying it has so far been contacted by more than 1,100 investors concerning their investments in Quindell.
And we still don’t know what the SFO outcome will be – though my hunch is that it will not be along the lines of “everything was just fine and Terry is a lovely bloke who’s never done a thing wrong in his life“.
Anything left?
But even putting that aside, if you buy shares today, your 166p would get you a stake in a small handful of lossmaking companies. The main ones are telematics firms Himex and Ingenie that are both burning cash, and the similarly unprofitable PT Healthcare. And there’s no sign of how Watchstone is going to be making any profits from these lame dogs any time soon.
So to those who bought in and made a profit from the cash handout, I say well done! But looking at what’s left of the company, it’s still in bargepole territory for me.