Friday 10 May 2013

Quindell Portfolio ... "Loans to other parties"?

Friday 10th May 2013

The share price of Quindell Portfolio (QPP, mkt cap £217m) has plummeted by over 50% this week. Reading its prelims for the year ended 31 December 2012 it was easy to understand why. Most concern seemed to centre on the scale of the group's trade and other receivables, which totalled £202m or 147% of 2012 revenue. Then attention turned to a £15.6m cash outflow for "Payments for swaps contracts". Apparently this was an equity swap contract issued as part of the funding for an acquisition. But there is still little clarity as to what the terms are and when it expires. The group's clarification regarding press speculation RNS was pretty pathetic. 

Little attention seems to have been directed to the other sizeable cash outflow in the line above the "Payments for swaps contract". At £15.1m, this was also material and relates to "Loans to other parties." I can find no explanation for what this loan is for, who it went to, what the terms were and when it is due to be repaid. However, the last time I can recall seeing this item crop up in a set of accounts was in the 2009 Annual Report for Xchanging plc (XCH, mkt cap £341m); in note 33. What Xchanging had done was to loan its Directors and key management personnel a wad of money to buy shares in the company. What then happened was that Xchanging's share price keeled over and there was little prospect of the loans being repaid. Xchanging's Directors and key management personnel were sitting on paper losses on Xchanging's shares of c. 50%. 

I can't help wonder whether Quindell has provided a similar arrangement for its Directors and key management? It would help to explain why there have been no Director share purchases subsequent to the plunge in the group's share price to support market confidence. Who would want to wade back in for further purchases if you're up to the gunnels in stock that has already dropped 50%? I would add that another possible explanation for lack of Director buying is that the Directors are prohibited from purchasing shares in market as the company is still in closed period until the full accounts are published. But publication could be months away and I have been advised that if requested to AIM, then Directors are permitted to purchase shares post the publication of prelims as long as no price sensitive information is known. Has anyone heard of an explanation for the "Loans to other parties"? The lack of clarification on the accounts is ridiculous. 

Quindell Portfolio share price
Source: Bloomberg
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

When QE stops ... the Long Bond drops

Friday 10th May 2013

As far as I can infer, shorting the US Long Bond (US1 Comdty) is some of the easiest money to be made. The main uncertainty is determining precisely when it takes the plunge. Enter the Federal Reserve Bank of Chicago President, Charles Evans. Yesterday Charles said the US job market is “doing better”. He went on to suggest that were the labour market to continue to perform strongly, then QE would be ended abruptly rather than tapered off. Further, given the aggression with which it yesterday got shoved back down from $147, that seemed to provide a clue as to where it wants to go. So I rang up Jackie at ETX and sold short at $146.8. When QE stops, the Long Bond drops. Where it drops to is the question. I would posit $120 for starters. From what I can see there is at most $4 downside to $26+ upside on this and even that may be conservative. The risk/reward is ever so asymmetric. 

US Long Bond
Source: Bloomberg
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog.