Beginners’ Portfolio: Quindell PLC Results Fail To Ignite

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BovisSince our last Beginners’ Portfolio update we’ve had a couple of key interim results reported. Stock of the moment Quindell (LSE: QPP) reported on its first half on Thursday 21 August, but before I look at that let’s see how our housebuilder fared:

Housing going well

Persimmon (LSE: PSN) reported on its halfway stage on Tuesday 19th, and things looked very good.

Legal completions in the period were up 28% to 6,408, with an average selling price up 4.3% to £186,970. Coupled with a rising operating margin, that led to a 33% rise in revenue to £1.2bn and gave a 57% boost to underlying pre-tax profit to £212.9m.

The strong performance had been expected, and we only saw a 3% rise in the share price over the week to 1,343p, but we’ve more than doubled our money since adding Persimmon to the portfolio.

Cash flow for Quindell

First-half figures from Quindell looked impressive too, on the face of it.

Gross sales more than doubled to £364m, with a near-trebling of adjusted pre-tax profit to £153.6m. Adjusted earnings per share perked up 79% to 29.6p.

quindellBut all eyes were on cashflow, with a number of critics casting doubt on Quindell’s ability to convert monies due into actual hard cash. But adjusted operating cash flow was said to be “significantly ahead of expectations and guidance“, coming in at £51.2m compared to a predicted net outflow of £60m due to planned growth.

So, everything lovely and a speedy recovery for Quindell shares? Nope!

After climbing 30% ahead of the results, the price slumped back to a rise of just 3% on the week, to 171p. But why?

Are those storm clouds?

Well, for one thing, although cashflow looked good, receivables have soared by 71% since December 2013 to £560m by June, so there’s still an awful lot of uncollected cash on the books. And although Quindell said it has not written down anything of significance, the potential conversion rate of that half a billion pounds must raise some concerns.

And then there’s the firm’s telematics joint venture with the RAC. Originally said to be worth £1bn, rumours have been surfacing of late that the deal has been going off the rails. And Quindell blew the opportunity to put people’s minds at rest, saying nothing about the RAC specifically and merely muttering about “certain contracts being restructured“.

On top of that, the Telegraph has reported chairman and major shareholder Robert Terry as saying the RAC contract was “hardly a focus” and opining that it wasn’t material to earnings. Wow, a £1bn deal is not material to earnings — what a company!

Trust is what’s lacking

And that shows what Quindell is missing — trust.

When there are questions surrounding a £1bn contract and £560m in uncollected receivables, what shareholders need is the kind of straight-talking that Warren Buffett is known for — not this mealy-mouthed evasiveness.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.