Quindell bemused by latest share slump

Insurance outsourcing group Quindell has been minding its own business for the past few weeks, certainly doing nothing to rock an undeniably fragile boat. Despite this, however, the share price fell every day last week and by 9% on Friday to a 14-month low, taking the weekly plunge to 18%.

It was sufficient enough for management to issue the briefest of statements:

The Board of Quindell Plc (AIM: QPP.L), a market leading global provider of professional services and digital solutions, notes the recent share price performance and confirms that it knows of no reason for such falls.

As originally planned, the company will update the market on or before 15 October 2014 on its trading for the quarter ending 30 September 2014 and the continued positive progress being made by the group in respect of all key performance indicators including cash performance.

House broker Cenkos Securities is unable to offer an explanation. On the contrary, it has some encouraging news.

At the end of last week The Lawyer reported that Quindell personal injury legal competitor Slater & Gordon is buying Cardiff-based occupational deafness specialists Leo Abse & Cohen, S&G's seventh acquisition since entering the UK market in early 2012.

"This is important because the weakness in Quindell's share price over the last few months partly reflects investors grappling with the economics and value of the group's expansion into Noise Induced Hearing Loss (NIHL)," says Cenkos. "There have been an increasing number of data points highlighting the growth in the UK NIHL market and M&A like the SGH deal is additional validation of the opportunity."

"In the third-quarter update we look for; (1) confirmation of full-year earnings expectations, (2) a small operating cash inflow in the third quarter and reaffirmation of an expected c£30 million inflow in the fourth quarter, (3) an update on progress on settling initial NIHL cases, (4) telematics subscriber growth update for N America in particular."

It still argues that Quindell's forward earnings multiple - currently 2 times 2014 earnings per share (EPS) estimates - is based on "uncertainty not fundamentals". "We expect this major risk-discount to unwind over the next few months (as the company delivers on full-year 2014 forecasts and 'rolls' cash, NIHL and telematics guidance into 2015) and support an initial re-rating back towards 500p (5x full-year 2015 estimates)."

Little has changed really. Clearly there's a lack of confidence in many quarters, and the debate about Quindell's business model rumbles on. The shares have tested technical support at 136p (See chart below), and all eyes are now on the third-quarter update. However, it seems unlikely that Quindell will have enough in the locker at this stage to challenge opinion in the City/press to win over the doubters.

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