Quindell: Their interim results to
30th June 2014 have been released reflecting another busy period for
the group. Picking out a few juicy headlines, revenue (recognised in line with
a fairly aggressive accounting policy) was £357.3m (up 119%), EBITDA was £156m
(up 189%) and adjusted eps was 29.6p (up 79%). There is no interim dividend.
There is a comment that ‘unadjusted statutory measures are all ahead of
Adjusted KPIs primarily due to £14.5m statutory gain on re-measurement of
acquisitions’, which hardly seems plain accounting speak. Adjusted operating cash
outflow was £51.2m, with Quindell pointing out that this beats their guidance
of a £60m outflow. This helped cash levels, which were £85m, to be ‘significantly
ahead of plan’, offset by a £20.5m overdraft and £32.4m of borrowings, making a
net figure of £32.1m. This is down sharply from the year end equivalent of
£153.5m net, which was made up of £199.6m cash less a £19.6m overdraft and
£26.5m of borrowings. Apart from the £51.2m operating cash outflow, there were
items for corporation tax (£23.4m), intangible fixed asset bought (£16.9m) and
subsidiaries acquired (£15.8m). Guidance for the full year is that they are ‘on
track to meet 2014 targets’ with full year revenue guidance of £800m - £900m
(i.e a further pick up on the first half run rate). They have increased the
EBITDA margin range guidance from 30%-40% to 35%-45%, with the first half
margin being 44%. Second half operating cashflow guidance is now £30m-£40m,
with that for first half 2015 ‘up to £100m inflow’, showing a really sharp
turnaround from the first half, as what might be termed new business strain
eases off. There is no specific news on the long awaited RAC contract, bar a general
reference to ‘certain contracts being restructured....’. The tone of all this
is upbeat and designed to head off the naysayers. If second half eps merely
match the first half then 60p of earnings at a share price of 200p is a bargain
PE of barely 3.5x. The problem for Quindell is that many sensible investors are
waiting and will continue to wait, for the cashflow improvements to come
through, re-build cash balances and vindicate Quindell’s buy and build
strategy. Whilst there was a modest maiden dividend (adjusted 1.5p) at the finals, higher
dividends will only flow from an improved cashflow. If that cashflow comes
through as guided, then dividends could increase rapidly, but, in such a
controversial stock, waiting for further proof seems prudent. (22nd August 2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk
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