Suffice to say it has been a turbulent few months for investors in Quindell (LSE: QPP). And, even though the company’s shareholders voted in favour of selling the professional services division (which is the bulk of the business) to law firm Slater & Gordon for around £640m, there is further uncertainty regarding the company’s future prospects. In fact, Quindell’s new management team have stated that they are willing to sell off other non-core assets, which could lead to more changes at the company moving forward.
So, looking ahead, what could be next for Quindell?
Reorganisation
Clearly, it will take time for the company’s new management team to decide which of the company’s assets are worth keeping, and which ones are worth selling off. This puts the company’s shareholders in a difficult position, since they own shares in a business that has lost its CEO and the main part of its operations, and is seemingly unsure about the direction in which it wants to head.
This is perhaps best evidenced by the reaction of the company to a reported bid from Edmund Truell. He is said to have offered around £60m for the telematics part of Quindell (which provides data on the driving habits of policyholders for insurance companies), with Quindell seemingly taking its time to mull over exactly what its future strategy will be and how it will deliver shareholder value in future. As such, it would be of little surprise if Quindell’s share price came under pressure in the short run – at least until more is known about the company’s future direction.
Capital
The main challenge for Quindell, however, is that it has promised to return up to £500m of the £640m received from the sale of its professional services division. While shareholders in the company may be happy to receive a boost to their cash reserves, it leaves Quindell with a relatively small pot of cash through which to rebuild its much smaller business.
In fact, if Quindell felt that its core assets could be developed further and could create significant shareholder value over the medium to long term, it may have been a better idea to retain more of the cash received from the sale, with it being reinvested or used to buy other assets that are more closely aligned with the core operations that Quindell already has.
In addition, with there being major concerns surrounding Quindell’s cash position and various rumours surrounding its finances, keeping a sizeable chunk of the cash within the business could have allayed those fears to an extent and helped to improve investor sentiment in the company.
Growth Prospects
Assuming Quindell does not sell its telematics business (which it has stated is among the stronger parts of its remaining business), it has the potential to deliver strong long term growth for its investors in this space. That’s because it has a new management team which is in the process of reorganising the business and, with some additional resources available to it from the sale of its professional services division, it has the potential to grow its core assets and rebuild sentiment in the company.
However, its future remains very uncertain and could include further asset sales, thereby fundamentally changing the nature of the business. As such, now seems to be a time to watch and wait, rather than buy a slice of Quindell.
