Shareholders in Quindell (LSE: QPP) and Monitise (LSE: MONI) have endured a grim 12 months.
Monitise shares have fallen by 73% over the last year, while Quindell is down by 85% over the same period, despite a barnstorming 80% gain since the start of 2015.
On sale
That’s not all these two former high-flyers have in common: both Quindell and Monitise have put themselves up for sale since the start of 2015.
Both companies have revealed that they have received expressions of interest from one or more third parties, but as yet, no deals have emerged from these discussions at either company.
Is Monitise a buy?
Monitise is currently in the middle of adapting its business to a subscription-based model that should provide recurring long-term revenues.
I’m in favour of this, as a subscription model should work well for Monitise’s service-oriented business, and should provide a more consistent level of sales and profitability in the future.
However, Visa‘s decision to taper its involvement with the firm and develop its own mobile payment resources in-house means that Monitise is likely to lose Visa as a customer from 2016, when the pair’s existing agreement ends.
In my view, this is likely to make Monitise’s growth target of 200m users by the end of 2018 unrealistic.
What’s more, although I believe that there is a big opportunity in the mobile payment sector, I am not sure Monitise is big enough to win convincingly in this market without a takeover or merger deal.
What about Quindell?
Concerns about Quindell revolve around the firm’s ability to convert all of its accrued revenues into actual cash: this is the focus of the current PwC independent review. If these concerns are proved valid, then Quindell could face big accounting losses.
Quindell shares currently trade on a 2014 forecast P/E of 1.2. Such a low number suggests that the market expects PwC to uncover problems that necessitate big writedowns, in my view.
Of course, it’s possible that this view is wrong — in which case Quindell shares would be a screaming buy at today’s price.
However, I believe the odds are stacked against such a positive outcome, not least because the PwC investigation was initiated at the request of the firm’s lenders, who have far better visibility of Quindell’s accounts than the majority of shareholders.
For this reason alone, I think Quindell is too risky to invest in until the results of the PwC independent review are known.
