One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
No shortage of excitement
Quindell (LSE: QPP) has certainly provided no shortage of excitement for investors over the past few months. Probably rather too much, for most.
Firstly, back in late April, Quindell came under attack from shorters, following a “report” published by an outfit called Gotham City Research, which included a number of allegations regarding the company’s operations. Following the Gotham report Quindell’s share price — which had already been drifting downwards — plummeted around 40%, and ended up some 55% down in total over the course of April.
Quindell’s share price continued to descend through May and early June, only to drop another 20% when the AIM-listed company’s application for admission to a full listing on the main market London Stock Exchange (LSE) was rejected. Explaining why its application was turned down, chairman and then-CEO Rob Terry said that it was “Quindell’s success and change of scale of its operations during the last three years that is a core reason for the Group not being deemed to be eligible for a Premium Listing at this time”.
Under threat
Also in June, Quindell’s current dominance of the insurance telematics market came under threat, when FTSE 100 giant Vodafone announced that it was buying Italian telematics group Cobra Automotive Technologies, with the aim of creating “a new global provider of connected car services” that will offer “a full range of telematics services” to automotive and insurance companies. It may be a while before Vodafone’s plans come to fruition, but it’s clear that Quindell is likely to face stiff competition.
In mid-June, Quindell founder Rob Terry relinquished the post of CEO (replaced by new-hire Robert Fielding), but remained as Chairman. The separation of key roles was presumably by way of improving corporate governance, as the company continues to seek a main-market listing, rather than a result of any actual problem with the way the company was being run. That said, it was the sort of thing a company aspiring to the main-market arguably should have done rather sooner than it did.
Vote of confidence
Quindell got some welcome good news at the start of July, when US investment behemoth Fidelity announced it was doubling its stake in the company. True, the amount spent by Fidelity (which has trillions of dollars under management) on its stake in Quindell is on par with you or I punting a few hundred on a high-risk proposition in the hope of getting lucky. Even so, investment companies like Fidelity don’t spend millions without doing some due diigence, so the doubling of its holding was seen by many as a vote of confidence in Quindell.
Mid-July saw Quindell’s share price jump over 20%, on the back of a positive trading update, but little over two weeks later they were falling sharply again, when the FT ran a story saying that the company had “run into trouble over one of its biggest contracts, a joint venture with the RAC”. As a result, Quindell’s share price is down almost 30% since that positive trading update was released on 14 July.
And there has been increasing concern about Quindell’s cash flow — or lack of it. The company has, so far, failed to convert its profits into hard cash. Whilst it did report first-half cash generation of £220m in July, it also said that it expects to report adjusted operating cash outflow of £51m for the first-half, due to what it termed “planned significant growth“. Whilst, on the bright side, that’s less than the £60m outflow it had previously indicated, the market may have only so much patience with Quindell’s “jam tomorrow” business model.
If…
So, given everything that’s happened in just the past four months, you’d be forgiven for wondering what might have convinced enough people to buy Quindell last week to put it the number 3 spot in our latest ‘Top Ten Buys’ list*. Catching a falling knife is dangerous enough, but Quindell seems more like a grenade with the pin out at times.
Of course, Quindell may yet prove the sceptics wrong. It still has big contracts with major companies, and the backing of institutional shareholders like Fidelity and M&G should provide some confidence.
If it can start delivering the sort of cash flow it needs to, and if it can get its RAC contract back on track (and none of the others get derailed), and if it eventually secures a full-listing on the LSE, and if its market position isn’t usurped by other telematics providers (such as Vodafone or Nokia), Quindell could prove to be one of the best investments last week’s buyers ever made.
But there are a lot of ifs between here and there — and only you can decide if Quindell is a ‘buy’.
