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Why Now Is Not The Time To Buy Quindell PLC

quindellIt would be fair to say that Quindell’s (LSE: QPP) third-quarter trading update, released earlier this week, failed to impress the market as the company’s shares fell more than 10% after the update was published.

Within the update, Quindell reported that for the period revenue jumped 115% to £198m and adjusted earnings increased 141% to £83m. Additionally, the company’s adjusted earnings per share rose 54% to 15p. However, Quindell has now cut its revenue guidance for the year by about 10%, from £800m-£900m, down to between £750m and £800m. Still, despite this guidance cut, Quindell reported a strong performance in all areas. 

Mixed views 

Unfortunately, even though Quindell’s performance during the third quarter was impressive, management’s guidance confused some analysts and investors. Indeed, even though the company cut full-year guidance within its trading statement, Quindell’s CEO Rob Terry stated alongside the release that: 

“We continue to deliver as we predicted to the market…It’s been the same guidance since when we raised money in November last year.”

Further, the company stated that: 

“ [the group] remains confident of meeting all of its FY2014 key performance indicators with these now achievable on revenue of £750m to £800m”.

So, for some reason the company does not consider revenue to be a key performance indicator. Sadly, these highly confusing statements made by the company have done nothing to dispel concerns about Quindell’s business model or future prospects.

Cash generation 

Despite the doubts surrounding Quindell’s numbers, the group’s trading statement did clarify one thing and that is the fact that the company is now generating cash. Cash generation has long been a crucial goal for Quindell as the company’s lack of cash flowing into the business has been interpreted as a sign of earnings manipulation. 

However, with cash flowing into Quindell’s coffers, the company can really begin to put negative rumours and speculation to rest. 

What’s more, management is now seeking what it has called “various options to generate shareholder value”. In particular, according to the statement released alongside the company’s trading statement: 

“…the Board is also examining various options to generate shareholder value one of which is the disposal/demerger of assets and strategic investments by third parties.”

Quindell has various subsidiaries under its group umbrella, so a spinoff or sale of assets could unlock shareholder value. It’s good to see that Quindell’s board is now looking to create shareholder value. The best management teams always put their shareholders first.

After taking this into account, even though Quindell’s guidance is mixed, if the company can continue to generate cash and create shareholder value then perhaps the shares could be a good long-term buy.

Up to you

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Rupert Hargreaves 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.