Why Quindell’s share price bombed today, even though profits rose threefold

Over the past few months, insurance outsourcer Quindell – once the darling of the stock market – has been the reluctant protagonist in a soap opera with a plot involving a shadowy organisation run by a mysterious superhero intent waging war on business “bad guys”.

 

Quindell’s woes began in April, when analyst Gotham City Research, run by media-shy ex-trader Daniel Yu (less “caped crusader”, more “corporate crusader”), published a document accusing the company of being a “country club built on sand” whose shares were worth 3p, rather than the 39p they were at at the time.

 

Understandably, Quindell didn’t take it lying down, issuing a 21-page rebuttal to Yu’s accusations. But it was too late: £1bn had already been wiped off the company’s valuation. By this week, shares had lost more than two-thirds of their value since April.

 

The Aim-listed company attracted further attention last week, when Shareprophets – a blog run by former City hack Tom Winnifrith – claimed it had been buying up worthless businesses to help out “old pals” and called on KPMG to investigate practices.

 

Again, Quindell denied the accusations – but became the most searched-for stock on the Hargreaves Lansdown website in the process.

 

This morning, the company published results it no doubt hoped would put an end to its the saga, showing half-year revenues more than doubled in the six months to the end of June, while pre-tax profits trebled. But its share price opened 7 per cent lower on Thursday, at one point plummeting as much as 12 per cent. What’s going on?

 

Michael Hewson, a senior market analyst at CMC Markets, suggested to The Times it's less down to worried shareholders than it was investors who had shorted the shares realising some cash. 

 

Those who bought in when Quindell was at its lowest – about 140p – in the middle of August, were taking the opportunity of today’s solid half-year results to exit. If they managed to get rid of them as the market opened, when share price was still 200p, they would have made 30 to 40 per cent. By 3pm, shares were closer to 190p.

 

Quindell is clearly keen to guard against anything like this happening again: in this morning’s results, it announced it had appointed a “group chief legal and communications officer”. Difficult to say whether lumping “legal” into the comms chief role was supposed to act as a threat to detractors or as reassurance to investors – but either way, would-be villains have been warned.