Are Quindell PLC Profits Better Spent On Quartix PLC?

If you’ve made money on Quindell plc (LON:QPP), consider taking profits and investing them in Quartix Holdings plc (LON:QTX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A recent run-up in December of the price of telematics provider Quindell (LSE: QPP) has got some analysts prompting investors to jump on board the stock, which dropped 79% in 2014.

But that’s a dangerous bet to make: problems that were sparked last year are likely only the start of bigger woes for this chaotically managed company, which is struggling to provide any evidence it can deliver on what appear to be false promises made to shareholders over the last three years.

The company boasts that by taking over Mobile Doctors in 2011, it was able to increase revenue to over £50m, and that a subsequent acquisition of Ai Claims Solutions further increased revenue three-fold and made it an appealing bet to insurers.

On the surface, bold claims of revenue enhancement looked true for a while: last time the company reported revenue for the first half of 2014 it claimed it had made £357.3m in sales.

However, the company’s cash position had by then also dwindled nearly 90%, to £18.9m, and bullish promises of providing all cars in the UK with fleet-tracking devices were looking more like hype than heat.

Alarm bells were rung loud at the end of 2014 when the company’s chairman Robert Terry was ousted from top spot, who subsequently unloaded 25 million shares onto the open market in December. 

A More Defined Target

The real problem with investing in Quindell is that this investment strategy blindly overlooks the key reason investors would want to buy a provider of fleet-tracking software: to capture the potential of being involved in what might become a takeover target in the next 24 months for a major road insurance company such as AA or RAC

In an industry with the potential for big market scale, but where hype and over-promotion seems to be the dominant characteristic, you want to look for the companies that are producing real, measurable results for customers where those relationships are likely to still be around in five or ten years time. Those are the companies that make the most interesting potential acquisition targets.

If you’ve made money on Quindell in the recent run-up, and still want to stay invested in the sector, look to a more wholesome and better-valued option than Quindell. 

Quartix (LSE: QTX) offers a compelling investment case. In contrast to Quindell’s perception-before-product approach to doing business, it has been steadily building a nice solid business supplying niche, relationship-focused customers such as Larne Borough Council and Apex Lifts over the past decade, when the technology first appeared on the market. Quartix has been in business since 2001, considerably longer than Quindell’s three-year sojourn around British motorways.

Crucially, Quartix’s management understands what Quindell’s doesn’t: that fleet-tracking device installation is not a one-size fits-all business model. For insurers, it’s only feasible to adopt the software for customers with premiums over the £700-£800 per year mark, since the cost of installation and running it is already around £150 per year. 

A portfolio of strong customer relationships and a solid management team make Quartix a much more viable takeover target than others in the sector, and especially Quindell. Management’s control over its business is borne out in the company’s earnings. The company estimates that it will earn £4.9m in EBITDA during 2014, with a 14% increase in sales to £15.1m; these earnings follow a 40% rise in EBITDA from 2012-2013, so they look conservative. For 2015, the company is promising shareholders a distribution of 50% of free cashflow to shareholders, so the valuation looks sweet. 

That sounds like something with the ring of truth to it, as well as plenty of value and upside: for shoppers such as big insurers looking to get in on the action, that’s usually enough to make them take a closer look.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Daniel Mark Harrison has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »