Quindell PLC (QPP) Responds To Report, But Fails To Convince Investors

Quindell Plc QPPQuindell Plc QPP

After Gotham City Research released a scathing report on Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) questioning the company’s earnings and setting a price target of 2p, Quindell saw its stock price quickly drop from 39p to less than 24p. Two days later, it has come back with a detailed refutation of Gotham City’s allegations, but its complicated rebuttal leaves the impression that a thorough look at the company’s books might be warranted.

Rationale behind Quindell’s complex transactions unclear

One example is Gotham City’s claim that between 2009 and 2010, Quindell PLC’s (LON:QPP) (OTCMKTS:QUPPF) largest customer was ClicksUs4.com, a company owned by Quindell CEO Robert Terry.

“Gotham’s representation of the Clickus4.com relationship is based on partial information and is misleading,” Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) writes in its defense. “ClickUs4.com was not originally an entity owned by Robert Terry, it was in fact a 100% owned subsidiary of Quindell.”

Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) explains that ClickUs4.com was a shell company that was used to acquire assets from other companies. First Quindell sold the shell to Terry for £1, then Terry sold it to vendors for £1. Clickus4.com would then trade stock for assets, and Quindell reacquired Clickus4.com in exchange for Quindell shares, and then consolidated Clickus4.com onto its balance sheet.

There may be good reasons for doing this, but they aren’t obvious. Most of the rebuttal reads the same way – lots of complex transactions that may be the result of entrepreneurs using aggressive tactics to grow their young tech company, or it could a sign of something worse. As Dan McCrum at the Financial Times points out, that Quindell has gone through three different auditors in as many years and listed via reverse merger are also red flags, even if they’re not evidence of any wrongdoing.

Gotham City critics cite the Ebix short

Gotham City’s interest in the matter is clear – they are short sellers hoping that other investors will accept their thesis and cause the price to plummet. Critics point to Gotham City’s Ebix Inc (NASDAQ:EBIX) short which was made public last June and caused the tech stock to fall from $19.72 to $9.52 in a day. But since then Ebix has slowly recovered, bouncing between $16 and $17 for the last two months.

Now investors have to decide whether they believe Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) is being unfairly attacked and is trading at a discount, or if this is a stock there better off avoiding. Quindell doesn’t do itself any favors by taking a defensive tone and presenting strange, complex transactions as if nothing could possibly be suspect.

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)

About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

1 Comment on "Quindell PLC (QPP) Responds To Report, But Fails To Convince Investors"

  1. QPP, in their detailed response to Gotham City’s allegations, provided a perfectly rational explanation for having appointed three different auditors in the same number of years. As for inferring that KPMG are incapable by suggesting QPPs books need looking into, I suggest you learn to write proper English (‘or if this is a stock there better off avoiding.’) before making such crass comments.
    I am not an employee of QPP, nor (yet) a shareholder, but note they the company has been thoroughly researched by many investor journals and finance houses and almost always highly recommended as a sound investment. I am likely to take advantage of this setback to buy the shares and would rather be holding them than be a Gotham City jobber right now.

Leave a comment

Your email address will not be published.