Bulletin boards and blogs are awash this weekend with comments about Quindell and their cash position.
This is bordering on the ridiculous. The following attempts to logically explain why cash is not an issue.
Q3 Trading Statement
Quindell guidance is £30m – £40m adjusted operating inflow (before tax, interest and exceptionals) in Q4 and £100m in H1 2015.
This is how £30 – £40m operating inflow guidance can be substantiated.
1. Q3 produced £9 million of operating cashflow and net cash remained the same at end of Q3 as it was at the end H1 at c£25 million.
2. Cash collections for Quindell Legal Services, excluding Noise Induced Hearing Loss are forecast to rise from £760k to £1 million per business day by the end of H2. This represents an average of £250k more per day than in Q3, when it rose from £500k to £750k.
3. Assuming Q3 produced actual operating cash of £5 million in the last month of Q3 we can extrapolate this over the whole of Q4 to produce £15 million plus the average increase of £250k per business day (item 2 above) during Q4 compared to Q3 which will produce a further £15 million of cashflow from operations.
This for Q4 would produce £30 million of operating cash.
What does this mean for Quindell?
£30m (item 3 above) + £9m (item 1 above) = £39m from Q3 compared to the forecast of £30m – £40 million.
Assuming Corporation Tax payment etc is then deducted, you would expect net cash to increase by the end of H2 by around £10 million to c£35 million.
If however, say roughly 1,000 of the NIHL claims have settled during this final quarter at the industry average then we could see an extra £10 million of inflow which would boost net cash to c£45 million pounds at year end.
If we come in right in the middle of the forecast and only get half the assumed possible extra income from NIHL cases you would still expect net cash after payment of the CT installment from October to have increased to £35 million by the end of this year.
Other Factors to Consider.
1. Company has c£80m in the bank.
2. Company has bank facilities it could draw down on,
3. Net cash position isn’t important. It’s the cash and cash facilities it has to meet liabilities.
When shorters are aware via a Quindell update that adjusted operating inflow (before tax, interest and exceptionals) is £35million, or greater, they will close their positions in earnest.
Quindell is unusual in that it is in a healthy net cash position with positive cash flows. Many companies growing like Quindell will be envious of Quindell’s cash resources.
It is laughable that Quindell’s detractors can claim the business is verging on insolvency.
Article based on information provided by QPP1000 a QPPSAG member.