Beginners’ Portfolio: We Dump Quindell PLC!

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The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.

Back in June I thought I saw one of those rare events — a company being unduly hammered after a scathing report by a not-disinterested party. The company was Quindell (LSE: QPP), and the report was by Gotham City Research who admitted that they would benefit from a falling share price.

So I took a risk and added Quindell to the Beginners’ Portfolio. I know long-term investing is best, but I do think there’s room for the occasional high-risk punt in unusual circumstances, providing it’s done with a small portion of your portfolio that you’re prepared to take a hit on if it goes wrong.

Well, it went wrong and I’ve taken the hit — I’ve dumped Quindell from the portfolio and have recorded the sale at 139p per share, which is the bid price at the time of writing — a significant loss on my buy price of 196.5p. I’ll tot up the cash and see what it does to the whole portfolio next time, but today I want to explain why I’ve waved goodbye to Quindell.

You need trust

In short, it’s because I do not trust the company’s management.

My doubts first surfaced when the RAC telematics rollout was cancelled. Originally, Quindell was touting the deal as being worth around £1bn. Yet after it had been canned, chairman and major shareholder Robert Terry was reported in the Telegraph as saying the contract was “hardly a focus“! One minute it’s worth £1bn, and then when it goes wrong it’s of no importance? I thought that dismissive volte-face was insulting to shareholders, and at the time I commented on what I saw as evasiveness.

The company later crowed about a legal victory it won over Gotham City Research — however, Gotham City simply didn’t turn up and the UK ruling has no practical effect on the US firm.

Meanwhile, others in the UK, including the respected stock market commentator Tom Winnifrith, have been withering in their criticism of Quindell’s management. After that rapid legal response to Gotham City, one might even expect Quindell’s board to sue over some of the claims that have been made — but they have remained silent.

More obfuscation

A third-quarter update on Monday seemed confused. On the one hand, the company gave its revenue guidance as £750m to £800m, though it did not explicitly state that that was in fact a drop from the £800m to £900m predicted at first-half time. But at the same time we heard that the company “remains confident of meeting all of its FY2014 key performance indicators“. Revenue not a key performance indicator? Hmm.

If there’s one thing I want from the managers of companies I invest in, it’s openness in its communications with its shareholders. But I’m just not seeing that from Quindell — instead I’m still seeing evasiveness, and I want no part of it.

I sincerely hope my fears are unfounded and that Quindell achieves great success. But I’m out.