Are Investors Right To Sell Quindell plc, Buy Monitise plc & Hold Blinkx plc?

The shares of Quindell  (LSE: QPP)Monitise (LSE: MONI) and Blinkx  (LSE: BLNX) are highly volatile, but their battered valuations could attract opportunistic investors.

What is the best strategy now if you are invested? And should investors looking for bargains consider these three names? Well, the answer is not clear-cut.

Has Quindell Cooked The Books? 

The current market value of Quindell means investors believe that Quindell has cooked the books. End of the story.

Yes, Quindell is a mess. It takes a huge leap of faith to invest in the business these days. Several rounds of bad publicity and recent share dealings by insiders have been terrible news for shareholders. Corporate governance is one of the biggest issues, of course. What else?

New management is needed. Poor communication skills must be addressed. Refinancing risk is real. Receivables aren’t promptly converted into cash. Still, and you may well disagree, I think Quindell’s fair value stands in the region of 170p — unless, that is, it becomes clear that there are holes in the accounts. 

The shares, which closed at about 68p on Friday, are down 15% on Monday as Quindell announced “that Canaccord Genuity Limited submitted its one month notice of resignation as the company’s financial adviser and joint broker on 21 October”.

It took almost one month to disclose a price-sensitive matter: that’s unreal. That’s how business is seemingly done at Quindell, though.

Quindell shares are now worth much less than the value of cash and receivables per share, based on trailing financials. 

Investors don’t trust Quindell any more and seem to ignore that debts are manageable, while growth and hefty margins show all over the P&L. 

Quindell’s business model is unclear, I appreciate that, and its strategy may not appeal to value investors, but it’s not unusual to bulk up via acquisitions. Of course, cash flow generation remains a problem, but working capital management seems to be slowly improving. If the “shorts” are right, and the numbers can’t be trusted, then it’s game over. 

Monitise: An Unlikely Target

“A takeover by IBM is just what shareholders would need,” I argued on 22 September, when the stock of the mobile payments company traded in line its current price of 30p.

The shares are up 15% in the last month of trading, but they changed hands well above 30p when takeover rumours by IBM emerged in late October. Shareholders are faced with dilution risk as Monitise may need to raise more equity to fund its expansion plans. It is burning cash and needs a partner, in my view. 

The shares have been under pressure since Visa said it was considering options with regard to its strategic stake in the company. The shares may attract interest from trade buyers, for they have lost 56% of value this years. As opposed to Quindell and Blinkx, however, fundamentals are weak — and without a partner, I don’t think the future looks promising. 

Blinkx: A Decent Bet 

Blinkx is going through difficult times but its core business isn’t dead, in my view. Trends for revenue and profits are not encouraging, and its business model may have to change, yet Blinkx’s cash position is sound and there are reasons to believe trade buyers may show interest. Investors have not digested two profit warnings in the last five months. The stock trades at four-year lows and has lost 88% of value in 2014. 

Blinkx managed to raise private funds recently, however. Welsh businessman Richard Griffiths — a man with an outstanding track record in investment and deal-making — acquired a 3.5% stake in the company for £4m in early September, which valued Blinkx’s equity at £114m. That implies upside of 13% from its current level, but if a takeover emerges then upside could easily be 50% or more.

There Is Better Value Elsewhere

Outstanding returns can be achieved by considering bigger and more solid companies whose shares have performed incredibly well over the last few years, we argue in our research. 

The findings? A few small and mid caps, whose trailing performance has been astonishing, could deliver a pre-tax annual return of 30% or more even in difficult trading conditions. Of course, you should do your homework before investing!

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