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Quindell Plc

Quindell Plc is a provider of sector leading expertise in Software, Consulting and Technology Enabled Outsourcing with its key markets being Insurance, Telecommunications and their Related Sectors. Quindell joined the market through Mission Capital Plc, now renamed Quindell Plc. The Company was readmitted to the market on 17 May 2011 following the acquisition of Quindell Limited prior to the immediate acquisition of Quindell’s technology and outsourcing partners. In December 2011, Mobile Doctors Group Plc was acquired increasing 2012 run-rate revenue to over £50 million. On the 1 April 2012, Ai Claims Solutions Plc became a subsidiary of the Group, increasing run rate revenue to over £150 million. Quindell Plc’s main country of operation is the United Kingdom where the Global headquarters is based. Shares in Quindell are traded solely on the AIM market (QPP.L).

QPP has seen a dramatic fall in its share price since Gotham City Research LLC published a report questioning the company’s profits, causing the price to fall from around 43p to a recent low of around 11.5p. Quindell called the report a “co-ordinated shorting attack” and has since initiated legal action to sue Gotham City Research LLC and report the activity to regulators. QPP’s share price suffered the continued decline when, earlier this month, news that the AIM listed company’s efforts to move to a premium listing were thwarted by a technicality, failing to satisfy all the listing criteria, more specifically, the listing rule which renders ineligibility to companies that have undergone a significant change in their scale during the last 3 years audited accounts.

The fall in share price is all due to negative press, we at VTM believe this is now factored into the share price. The reason we decided to look at QPP is its fundamentals, which at the current share price of 14p, looks very attractive. In the accounts to 31 Dec 2013, reported revenues were £380m with Pre-tax profit of £107m, EPS of 2.54p putting it on a current PE of 5.5, and even a little token 0.1p dividend. Forecast numbers this year to 31 Dec 2014 show revenues of £1,048m (+275%) and Pre-tax profit at £322m (+300%), EPS growth of 49% to 3.77p, putting QPP on a forward PE of 3.7 and a small dividend yield of 1.3%. Looking to next year, forecasts to 31 Dec 15 show £1,609m revenue, £487m Pre-tax profit, EPS 5.34p giving a forward PE of 2.6 and a 2% dividend yield. In the recent update for Q1 2014, QPP had revenues of £163m, so they must be expecting a ramp up in revenues to reach the forecast £1,048m for the year. Cash balances as at 31 Mar 2014 were circa £150m.

Based on the fundamentals of the business, we would be buyers at the current price of 14p, however the stock was up 12% yesterday, it is possible there may be an opportunity to get in around 12-13p when traders take some short term profits. We would initially target a very conservative 20p as the first profit taking level, but with a long term view, we would value QPP at 70p, this is largely dependent on QPP achieving their forecast figures. For reference, broker target prices show Canaccord at 87p (07/04/14), Cenkos at 90p (07/04/14), GECR at 50p (23/10/13) and DS&C at 48p (25/09/13). Clearly it’s not just us that see the fundamental value here, so regardless of what various media outlets are reporting, the numbers speak for themselves and we would remain buyers until we see any developments that effect the fundamentals of the business.

One other point we would touch upon before finishing up is that Gotham City pointed out that QPP had 3 different auditors over the last 3 years. Anyone with any knowledge of Corporate Governance understands the positives and negatives of this. We would point out that it is recommended for companies to periodically change their auditors to practice good Corporate Governance, the reason being it is a fresh set of eyes being cast over the company. The fact they have had 3 different auditors over the last 3 years should instil confidence among investors. Sometimes keeping the same auditors allows for a wider margin of forgiveness as the auditors are already familiar with the business from previous audits. Employing new auditors each year requires full information to be provided to help the auditors gain a full understanding of the business for their first audit. Companies only tend to keep their auditors year after year because it is a much smoother process having auditors come in that are already familiar with the business, and it is cheaper for businesses to keep on their current auditors. New auditors have to perform more work and therefore charge more.

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