Quindell was famously tainted by an investigation by the Serious Fraud Office (SFO), after Gotham City Research shorted the stock based on its belief that the company’s accounts might not be as shiny as they seemed. That was vindicated by Quindell’s eventual need to restate its figures, and by the firm’s accountant Arrandco (formerly RSM Tenon) being fined £1m.
Quindell went on to sell the bulk of its insurance business to Slater Gordon (and there’s ongoing litigation over that), and reshaped the rest of its business as Watchstone Group (LSE WTG). How has it been faring since? Well, the share price has crashed for starters.
Watchstone has been recording losses for the past few years, but they’re coming down. The year to December 2017 has brought in underlying revenues of £44.9m (from £42.7m in 2016), with a loss after tax of just £2.6m (from a hefty £69.1m a year previously).
That’s moving in the right direction, but it has to be tempered by a rising operating loss of £7.4m, up from £4.5m.
On the liquidity front, Watchstone looks stable enough, with cash and term deposits totalling £62.8m, and net assets of £66.1m, representing 144p per share — and with the shares at 99p as I write, they’re trading at a significant discount to that.
New chief executive Stefan Borson said: “The Group losses are now stemmed and the central team efficiently run,” but his statement also covered legacy issues from the old days. The SFO investigation is still continuing, and the case by Slater & Gordon is being defended — with Mr Borson saying that “Slater & Gordon’s allegations of deceit and the associated breach of warranty claim are wholly without merit.“
The company’s pt Health and ingenie divisions seem to be in leaner shape and could well be set for renewed growth, but there are still significant legacy uncertainties for investors to deal with.
Wealthy oil future?
My second recovery-based growth candidate today is UK Oil & Gas Investments (LSE: UKOG), a major partner in the Horse Hill oil development at the Weald Basin in Surrey — once hopefully labelled the Gatwick Gusher.
The UKOG share price soared to 11p during the height of the optimism, but since then we’ve seen a slump as low as Friday’s 1.5p as confidence in the hoped-for billions of barrels of oil has waned. The stuff might be there, and there might be very large quantities of it, but the geology of the region seems to be making it very hard to get hold of.
The company’s full-year report at the end of March was full of the exciting possibilities, with the Broadford Bridge-1 well currently its key hope. But though regular updates keep confirming the existence of the black stuff and oil flows keep being reported, many investors are starting to fear for its commercial viability.
The big problem for me is that until we see commercial quantities of oil being pumped, it’s really anybody’s guess whether there are untold riches to be had, or whether an investment would be nothing more than throwing money down a hole.
Those who understand the risks better than I do might see an attractive growth opportunity here, and I’ve been bullish in the past, but the increasing uncertainties combined with my technical ignorance are enough to keep me away now.
