All this rain may be a pain for most people in the UK, but wet roads mean the number of motor insurance claims go through the roof; good news for Aim-traded technology outsourcer Quindell Portfolio. It has built a platform that cuts costs for the motor insurance industry, which is on its knees as personal injury costs soar, competition crushes margins and new legislation cuts off a key source of income.
- "Exceptionally strong" first half
- Management interest aligned with big share price upside
- Major £120m contract win
- Record sales pipeline
- Further acquisitions could dilute investors
- High risks integrating business
The rapid growth is no surprise to Rob Terry, chairman and chief executive, who, it is fair to say, has learnt how to build insurance outsourcing businesses at the school of hard knocks. He says personal injury costs now make up around half of total claim costs, which makes Quindell's aim to reduce costs for major UK insurers by 20 per cent, a compelling prospect for clients. It can do this by offering a service that can handle every aspect of a claim. The Ai Claims division, bought in April, manages the claims process including car repairs and car hire. The human side is handled by Mobile Doctors, the acquisition of which was completed at the end of 2011, which assesses any injuries and rehabilitation necessary. If there are any legal disputes, often the case, these are looked at by Silverbeck Rymer, bought in January this year.
Quindell finished the first half with "exceptionally strong" results and sales are expected to be around £45m. A record second quarter saw revenues leap from £12m in the first quarter to £33m. Broker Cenkos is forecasting full-year revenues of £155m, giving cash profits of £35.5m and adjusted EPS of 1p, rising to £62.7m and 1.53p a year later. Management incentives kick in if they deliver 2p of EPS in 2013; if they get there, the shares are currently trading on a paltry 3.5 times forecasts.
QUINDELL PORTFOLIO (QPP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 7p | MARKET VALUE: | £180.5m | |
| TOUCH: | 6.75-7.25p | 12M HIGH: | 8.63p | LOW: 1.88p |
| DIVIDEND YIELD: | - | PE RATIO: | 5 | |
| NET ASSET VALUE: | 2.11p | NET DEBT: | 23% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | - | - | - | - |
| 2010 | 0.15 | -0.99 | -0.09 | na |
| 2011** | 13.7 | 4.07 | 0.47 | na |
| 2012* | 155 | 34.9 | 1.00 | na |
| 2013* | 254 | 60.9 | 1.53 | na |
| % change | +64 | +74 | +53 | - |
Normal market size:60,000 Market makers Beta: na *Cenkos estimates are not comparable with historic figures **15-month period to 31 December 2011 | ||||
The backdrop looks encouraging for Quindell. Mr Terry expects the insurance industry to put out around £5bn-worth of legal services and accident management work for tender in the near future. This comes as the insurance industry is set to lose a major source of income following the coalition government's decision to ban referral fees - where legal firms pay for the details of crash victims to pursue claims on their behalf. Quindell is already winning work and recently announced a £120m, three-year outsourcing deal. Meanwhile, the software and consultancy division finished the first half with a record bid pipeline.
Quindell came to Aim in May of last year after the reverse acquisition of Quindell Ltd by Mission Capital, which was subsequently renamed Quindell Portfolio. It comes to market at a far more sober rating than Mr Terry's previous insurance software venture Innovation Group, which listed to much fanfare at 229p a share at the tail end of the dot-com boom, when he was just 31, and soared to over £10. But a recession and an overambitious expansion strategy caused the shares to collapse to 20p in 2002, which is around where they remained for the next 10 years.
