QPP – big drop today

QPP (Quindell) took a big dip of 11.7% today, putting the share price at 10.6p. It will shortly test a 10p support level. If it fails, then the downtrend that started at the beginning of the year seems likely to continue.

Fear about expansion being too rapid, and high debt levels are causing concern for the market. Chairman and Group Executive, Robert Terry regularly tweets. There is some fear that he is being too promotional in his activities.

POSTonline said, last year:

Rob Terry, a management consultant with a technical background, became well known in the UK insurance industry in the 1990s as founder of the insurance technology specialist, Innovation Group. He led the three-year-old firm to flotation in 2000, not to mention numerous acquisitions, before leaving the then-global business in 2003 to launch outsourcing and technology firm Quindell.

I dug up an interesting article from Bankrupt.com, where the prelim results for y/e 30-Sep-2003 for TIG (The Innovation Group) were published:

Adjusted profit* before tax, was £3.3m for the year ended 30 September 2003 (2002: £10.0m) and revenue for the year to 30 September 2003 was £58.5m (2002: £100.1m). … In March 2003, the Group concluded a rights issue which raised approximately £9m net of expenses. The rights issue strengthened the balance sheet and gave clients, partners and prospects the confidence they needed to consider TiG as the solution provider for their mission critical needs. … In September 2003 Rob Terry resigned from the Group.

What goes up, can go down.

In a tweet from an hour ago, Mr Terry addresses concerns over the debt levels for the company, and notes that all debtors are on average under 6 months, whereas for the failed companies Accident Exchange and Helphire, the debtors were over 18 months. The tweet appear to be a response to Paul Scott’s recent article on Stockopedia, where he writes:

However, the biggest red flag by far is that Debtors has risen from £31.7m to £202.3m! It reminds me very much of one of my worst investing mistakes a few years ago, Accident Exchange – which operated in the same area as Quindell, supplying replacement vehicles to people who have had accidents & then trying to reclaim the money from their insurance company. …

They load up the pricing, which generates huge paper profits, and then haggle with insurance companies over payment, which results in a debtor book just getting longer & longer, before eventually there are huge discounted settlements, a large chunk of debtors is written off, the shares collapse, and a rescue refinancing is needed.

It should be noted that the increased debt is on an acquired company’s books. QPP currently trades on a PER of around 6.7. Investors are faced with the following key question as to whether that debt will really be recovered in 6 months.

For those that are bullish on QPP but not yet invested, it might be best to sit on the sidelines and wait for the next trading statement to obtain confirmation that the company has demonstrated cotnrol of its debts, and hadn’t embarked on yet more acquisitions.

Good luck to all on this. It will be interesting to see how things progress.

10.75p

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About mcturra2000

Computer programmer living in Scotland.
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