Quindell Portfolio - Incredibly cheap or crash and burn - Part 2.

Quindell Portfolio is one of the smaller AIM companies that I have been following recently. On paper it seems a remarkable story and looks like one of those penny share tiddlers that many investors dream about. The type of share that can be had for a few pence, but looks to have the potential to go much higher, a ten bagger or much more.

For some investors it is psychologically nice to own a lot of shares in a company and penny shares have always had their own unique attraction, although in reality they are often expensive if only because there are often hundreds of millions or billions of shares to be had. Penny share companies will often have a new issue to fund new ventures going forward or simply to raise more cash in order to survive. This will dilute any holding you may have, even if it does look good to hold a lot of shares you still don't have value and many small investors have been burned by smaller company penny shares.

Such companies tend to attract a strong vocal following and Quindell, certainly if bulletin boards are anything to go by, has its fair share of committed followers. It was recently in the news for all the wrong reasons as mentioned here which attracted the attention of short sellers, the share price being in free fall for several days. The debate on the BB's got very heated between defenders and attackers (bulletin boards on fire), the share price recovered slightly, but still lags, the trend looking horribly down.

Some have suggested that there are enough red flags about this company to make it one not to invest in. Others that the story is a good one with enough positives to suggest that the market is seriously undervaluing its worth. The market can be a strange place, because there certainly are plenty of companies doing far less than Quindell that have silly valuations applied to them. Nevertheless the market still doesn't quite believe the Quindell story, that what looks to good too be true may be exactly that.

Furthermore, the CEO of Quindell was previously the CEO of a similar company called the Innovation Group. That company grew by acquisition and its share price flew on the back of it. The rapid growth by acquisition at that time didn't stop the share price eventually collapsing though and Innovation is still a long way off its past share price highs and may never get back there. Thanks to the internet it is not that difficult to dig up some of the past history of Innovation and you do wonder if history is repeating itself.

Quindell Portfolio - Incredibly cheap or crash and burn?

Yesterday AIM company Quindell Portfolio announced annual results that you might be forgiven for thinking would set the pulses racing, especially as, at least on paper and at first glance, the fundamentals and future prospects of the company seem to look great. 

Quindell Portfolio´s 2012 revenues and pre-tax profits were 10 times higher than the previous year as the company focused on earnings enhancing acquisitions.

The group, which provides expertise in software, consultancy and technology enabled outsourcing to insurance and telecommunications sectors, reported revenue of £137.6m, a 904% increase compared to £13.7m a year earlier.

Pre-tax profit rose 915% to £41.2m from £41.2m and earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 681% to £52.2m from £6.7m.

During the year, the company kept its emphasis on organic growth and profitable acquisitions in legal, health and claims.

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=2564291&action=news&story_id=20879086

Prior to the announcement the share had been falling slightly, but upon the news it almost fell off a cliff, or at least a small one, from around 13p yesterday to a little under 11p today.

Quindell is one of those penny share type companies that seems to have a huge loyal following if comments on many BB's are anything to go by. However, even though its share price is in the penny share league, it does actually have a market cap of around £440 million, although that seems to fluctuate wildly with every 10% this way or that way move.

Reading on those BB's also suggested that bear raider Evil Knievil, Simon Cawkwell has also bet against it. If so, he has taken on the company itself which seems to be betting the other way. The Times reported that the company itself has £13.3 million in CFD long bets on its books, which some may think is not the way shareholders money should be used, while others might think it shows faith by the management in the company's future. For the moment at least, Quindell is probably losing big time on that bet (Note - read on a BB that this had now been closed although others question this).