Investment in software and telematics play Quindell (LSE: QPP) has proved not to be for the faint of heart. A failed bid to enter the London Stock Exchange’s main market this month, combined with the effects of a bearish (to say the least) report from the curiously-monikered ‘Gotham City Research‘ back in April, has put the company’s share price firmly on the back foot.
Still, I believe that current weakness in the share price represents a prime buying opportunity, backed up by its blockbuster growth prospects.
An underestimated growth selection
Based on the City’s most recent earnings forecasts, Quindell currently trades on a bargain-basement forward price to earnings (P/E) rating of about 3.5 times prospective earnings for 2014. A figure around or below 10 times predicted earnings is generally considered terrific value.
And the company’s exceptional price given its earnings prospects are bolstered by bubbly price to earnings to growth (PEG) numbers. With Quindell expected to witness a blistering 127% earnings improvement during the current year, the business carries a ridiculously-low PEG reading of just 0.1 — any figure below 1 is represents outstanding bang for one’s buck.
Share price ready for blast off
And chatter across the City seems to suggest that Quindell is on the verge of a significant share price spurt. Indeed, broker Daniel Stewart announced just this week that it had slapped a £10.05 price tag on the company’s stock, representing an eye-watering 395% premium to today’s trading price.
A backdrop of blistering demand for the Fareham-based firm’s tech expertise from the insurance and telecommunications sectors has helped to drive profits through the roof in recent years, a trend which is widely expected to continue. Quindell saw adjusted pre-tax profit surge 172% to £133.7m last year, a figure which Daniel Stewart expects to advance a further 123% in 2014 to £298.4m.
The business announced at last week’s AGM that it continued to enjoy ‘positive trading‘ conditions, an environment which allowed it to ink new contracts and existing contract extensions worth in excess of £250m per annum. In particular, the deals are expected to boost run-rate revenues at Quindell’s Legal Services division from £650m to £900m starting from the second half of the year.
As well, the firm also announced that negotiations with major insurers, auto manufacturers and telecoms providers across the globe had resulted in a slew of new telematics contracts across multiple regions, as well as the successful roll-out of its technology in North America.
As broker Cenkos points out, the Association of British Insurers expects around 100 million policies to be linked to telematics technology by 2018, representing a huge growth area for a market stalwart such as Quindell.
