After PSD Disposal, Will Quindell PLC Sky-Rocket To 300p On ‘New Plan’?

There’s not much left in Quindell plc (LON:QPP) after the PSD divestment, argues Alessandro Pasetti.

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.

Australian law firm Slater & Gordon has agreed to buy the Professional Services Division (PSD) of Quindell (LSE: QPP) for approximately £650m, as it makes a push to grow its share in the UK personal injury market.

So, who said that Quindell had cooked the books? Where are all those pundits suggesting that its equity was not worth a penny? 

The most pressing question to me now, however, is whether its shares will rally to 300p from its current price of c.155p!

Let me explain…

Show Me The Money!

There has always been a chance that Quindell would rally on takeover news. For short sellers, it is not going to be a very nice day in the office. 

The PSD unit will be sold for an initial cash consideration of £637m “and further contingent cash consideration payable in respect of the future settlement of its clients’ noise induced hearing loss (“NIHL”) cases (“Disposal”),” Quindell said. 

The total cash amount payable to Quindell “is approximately £649m”. Proceeds from the sale will be used for several purposes, including cash returns to shareholders of up to £500m. 

“The precise amount of any distribution to shareholders has not yet been determined,” but based on the £500m figure, downside for Quindell shareholders could be at least 20%. I’ll show my workings… 

At the time of writing, the shares change hands around 150p, for an implied market cap of £660m.

One way to value Quindell is either via considering the amount of cash that it may fetch from the divestment or the cash that it may redistribute to shareholders. 

Sell, Sell, Sell

What the share price movement suggests is that it takes more than lots of courage and nerves of steel to stay invested right now!

You really need to assume that the board will have enough cash to spare with shareholders once all the calculations are done. Quindell needs cash to repay gross debt of about £45.6m and funds for working capital needs as well as investment in the retained businesses.

Sell, sell sell is the obvious recommendation — unless, that is, you believe Quindell has lined up a fantastic business plan. The shares rose to 180p in early trade but it looks like some investors may have not done their homework properly — blame Monday mornings for that….

What’s left behind? An Empty Box

“The board also announces a clear strategy for the group should the disposal complete,” Quindell pointed out. Great news: what’s that plan? 

Quindell said on Monday that it would focus on its range of technology businesses with strong growth potential, disposing of non-core businesses.

Robert Fielding, the chief executive, said that “should the transaction complete, he would feel proud to leave behind an exciting technology business set for substantial growth and success.”

So, Mr Fielding will resign to lead PSD if the deal goes through, while many board members would leave the company. Any future strategy hinges on the sale of PSD, and all the way though the release it clearly reveals that the risk the deal may not go through is real.

So, let’s assume for a second that the deal does not materialise — after all, third-party risk can be pretty damn high when the buyer is a law firm, and Slater & Gordon doesn’t have the cash, but still needs to raise equity capital to fund the purchase. 

Then, Quindell will comprise a range of technology businesses “with strong growth potential”, in particular:

  • “connected car and telematics (Himex, iter8) – these businesses are relatively early stage with a number of contracts with major insurers in North America”;
  • “insurance claims management systems (Quindell Enterprise Technology Solutions) – this is an established business which provides high quality enterprise software and recently won the XCelent Award 2015 for Claims Administration”; and
  • “insurance brokerage utilising technology and telematics (Ingenie) – this is a fast growing, young driver specialist in the UK, which recently commenced operations in Canada and won the Insurance Times Award for Innovation in December 2014.”

“This strategy will require some prudent capital investment supplemented by the cash flow such businesses produce themselves,” Quindell concluded.

Ultimately, then, the pundits may end up being right in the end if the sale is not successfully executed by May…

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.

Alessandro Pasetti 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »