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
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