Cash Flow Update Sends Quindell Up 15%

Quindell PLC (LON:QPP) is turning to disposals to raise cash.

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Beleagured insurance outsourcer Quindell (LSE: QPP) gave its shareholders a pleasant New Year surprise this morning, when the shares rose 15% to 45.5p in response to an update on the firm’s cash situation.

Although Quindell says it “remains comfortable with the Groups overall cash position“, the company nevertheless revealed that it is pursuing disposals as part of its cash generation initiatives. And as of 31 December, it has “entered into exclusivity arrangements with a third party in respect of the possible disposal of an operating division“.

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Good news?

But before we get too excited, is this news really so good?

For most of 2014, Quindell was assuring the markets that its cash flow position was fine and that all those accruals would soon start turning into actual revenue. Until 8 December, that was, when a couple of bombshells were dropped.

In a trading update Quindell admitted that “The growth in cash receipts in the final quarter of the year has not been as significant as previously anticipated“, and that “taking into account the Group’s cash reserves and continued access to its three credit facilities, […] the Group’s resources are sufficient to deliver on management’s current plans“. The implication that Quindell needed those banking facilities to survive sent shivers down a few spines.

But perhaps more worryingly, Quindell also told us that “in conjunction and consultation with the Company’s bankers, advisers and auditors“, it had called in PwC to conduct an independent review into its accounting policies and its cash generation expectations heading into 2015.

Banks getting cold feet?

While some opined that this was an example of a responsible company endeavouring to put its shareholders’ minds at rest, the more cynical (and I would say more realistic) of us saw it as a sign that the banks were getting twitchy about the cash they’re risking and they needed to be convinced of Quindell’s viability.

Today’s announcement does nothing to turn me from my view that Quindell really is in a cash flow hole, as disposing of assets that it paid big money for in its recent expansion-by-acquisition spree is not a characteristic of a successfully growing company that genuinely has no cash flow worries.

Disposals are not certain, but should we hear of any in the coming weeks it will be interesting to see what prices Quindell realise compared to their earlier acquisition costs, and it will be worth keeping an eye open for any writedowns of goodwill.

Not the answer

And even if Quindell does raise some short-term cash in this way, that won’t say anything about its long-term viability. For that we’ll need to wait for the PwC report and Quindell’s banks’ reactions, and for properly audited results.

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