Investors watched with despair as the shares closed at 7.34p yesterday, down from 13.47p on Tuesday morning, causing a large fall in the company’s stock market value.
The sell-off appears to have been sparked by questions over a £13.3m contract for difference mentioned in Tuesday’s results.
The derivative deal, used to fund a December takeover of compensation lawyers Accident Advice Helpline, involved Quindell placing new shares while also offering a guarantee against future losses – essentially betting that its own share price would not fall.
“It is quite strange. I have not seen it before and most people are wondering why they’ve done it,” Andrew Noone of equity research firm GECR told City A.M. yesterday.
He said Quindell told analysts on Tuesday the deal was a chance “to invest in a stock that is undervalued”.
Quindell has made 13 acquisitions during the last year, costing £96.4m in total. It offers a package of claims management services to the insurance industry including legal work, medical reporting, and car hire.
Many of these acquisitions were at least partly funded using the company’s own stock.
However, short-seller Simon Cawkwell – nicknamed Evel Knievel – has made a large bet against the company’s continued success in recent weeks.
After staying silent all day Quindell last night issued a stern statement, insisting it “has a strong balance sheet and continues to trade profitably”. “The company knows of no valid reason for the recent share price decline,” it added. “The equity swap... accounts for a small part of the group receivables and is not a material contract in relation to the size of the group.”
THE CHIEF EXECUTIVE AND CHAIRMAN
Terry previously founded outsourcer Innovation Group, which floated on the London Stock Exchange in 2000. Its market value briefly reached £1bn before the stock crashed. Known for his active use of Twitter to engage with investors, Terry is keen to transfer Quindell to a full stock exchange listing by the autumn and is eyeing possible inclusion in the FTSE 250.
Innovation Group veterans
Four directors of the six-strong Quindell board were previously involved with the Innovation Group: chairman and chief executive Robert Terry, finance director Laurence Moorse, non-executive director Stephen Scott, and senior non-executive director Anthony Bowers. Meanwhile a number of other former Innovation Group workers have joined in recent months, such as group chief revenue officer Robert Thomson.
THE SHORT SELLER
Simon Cawkwell aka Evel Knievel
Notorious short-seller Cawkwell has taken hefty bets against the stock, declaring that “it is simply not investment grade material”.
House broker Cenkos issued a 40p target price on Tuesday. The company has also acted as adviser to the company on recent share placings.