Beleagured insurance claims processor Quindell (LSE: QPP) announced this morning that the co-ownership of its joint venture with the RAC is over.
The venture, Connected Car Solutions (CCS), with a target of getting two million telematics black boxes installed in cars on the UK’s roads, had been hailed as a major step forward for Quindell’s prospects.
No rollout
But on 2 September, Quindell announced that “Due to market conditions beyond the control of either Quindell or RAC, the parties have concluded that it is not the best use of capital for either party to finance a free telematics roll out to consumers as initially planned“, and that Quindell is to buy out the RAC’s share of CCS. There will be a net cost to Quindell of £3.5m.
Problems with the deal were revealed by the Financial Times on 4 August, but Quindell was quick to dismiss the report as overblown. And chairman Robert Terry rather shockingly told the Telegraph that the RAC venture was “hardly a focus“, in contrast to his earlier statement that it was going to “revolutionise the insurance industry”.
Quindell has also been under fire as its cashflow has not come close to its reported profits, and although that did improve with the firm’s first-half results, uncollected receivables soared to £560m.
Tell it straight
The evasive way Quindell went about this will surely have further darkened its already dim reputation for openness and transparency. And if a company is going to be so mealy-mouthed when it comes to something as important to its shareholders as a “revolutionary” joint venture, it will surely have people further scratching their heads about those uncollected receivables and how much will actually turn into cash.
We also have to wonder whether the RAC had any fears that its close association with Quindell might have been damaging to its own planned flotation, which is expected to value it at around £2bn. Quindell had famously failed in its attempt to gain a main market listing, ostensibly because its rapid growth had prevented the required prior three years of stability — but the firm went on to recognise that its corporate governance also needed a bit of a makeover.
Buy the shares?
The big question comes down to whether Quindell shares are a Buy now — I already took a risk and added some to the Fool’s Beginners’ Portfolio in June.
The negatives are all still there — the famous Gotham City Research report that slated the company’s governance, the short-selling attacks, the LSE listing failure, the mounting uncollected receivables, and the weasel approach to the RAC developments.
But on the other hand, dropping the costs of the free telematics rollout will help with cashflow — and investors have pushed Quindell shares up 6.5p (3.8%) to 175.5p at the time I write these words. At that level, they’re on a price to earnings ratio of only three on year-end forecasts, dropping to a smidgen over two for 2015!
A calculated risk
If the truth lies, as I suspect, close to midway between the Quindell board’s optimistic pronouncements and the naysayers’ pessimism, then I reckon that’s still way too low a valuation — and I’m happy to keep it in the Beginners’ Portfolio as a recovery/growth punt. But that’s just my opinion — you need to make up your own mind if you’re stumping up actual cash.
