Baam! Pow! Quindell profit packs punch

Still reeling from a Gotham City Research 'sell' note and bear raid, Quindell has let its numbers do the fighting. Revenue more than doubled and profits surged almost three-fold at the insurance outsourcing firm during the first half, propelling the share price up 25% on Monday. Quindell remains the ultimate marmite stock, but the bulls have latched onto these impressive numbers and, if they're right, the share price could double.

Ahead of interim results on 21 August, Quindell flagged a 116% surge in revenue for the six months ended June to £355 million, with contract wins helping double sales at the core services division, while revenue from the solutions operation surged by 176% to £62 million. Recent acquisitions accounted for less than 10% of sales. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed 187% to £155 million and adjusted earnings per share (EPS) leapt 82% at 30p.

Crucially, adjusted operating cash flow, or cash burn, of £51 million was much better than the £60 million originally pencilled in, too. And, with over £220 million of cash collected in the period, Quindell had £84 million in cash at the end of June and bank borrowings of £60 million, so it won’t have to raise any more money for the foreseeable future.

Management is also confident of hitting full-year key performance indicators - cash conversion, adjusted EBITDA and adjusted EPS - on sales of £800-£900 million, and profit margin of about 40%.

Cenkos Securities reckon the shares are set for a short-term re-rating back to 400p and the broker has maintained its medium-term valuation of 1,300p. They believe the outlook statement supports the operating cash flow expectations for the third and fourth quarter, and have upgraded full-year 2014 and 2015 forecasts by 4% and 12% respectively. Full-year 2014 EPS has been pencilled in at 62p, rising to 100p in 2015. Cenkos says 'buy'.

Quindell also beefed up its board with the appointment of David Scott Curie, former head of investment banking at Investec Bank, as non-executive director.

Upping its ownership to 100% of ingenie Limited and 99.9% of Himex Limited, Quindell is issuing around 15 million shares for both. The group has issued nearly two million shares in respect to the acquisition of iter8, with over 17 million new shares expected to be admitted to trading on 21 July taking its total number of ordinary shares in issue to 436.3 million.

These results are encouraging and suggest that a "coordinated shorting attack" from Gotham City Research has not damaged Quindell's trading operations. It clearly hasn't damaged investor enthusiasm for what remains an incredibly volatile and risky stock, either. Widows and orphans be warned.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.