Quindell - throwing good money after bad?

Quindell's share price keeps falling and directors keep buying. Either the market has got it horribly wrong, or bosses at the legal outsourcing firm are insane. Rarely has the City seen such staunchly opposing views. Clearly, one side is right; which one it is may not become clear for some time yet.

Now at an 18-month low, chairman Rob Terry and three of his team have spent almost £2 million on Quindell shares at around 123p. Terry bought 1 million, non-executive director Steve Scott bought 525,000 and finance director Laurence Moorse snapped up 50,000.

"As demonstrated by the purchases made by some of the board today and recently by other members of the board and executive team, we believe the current market valuation of the company is materially below its true value," says Terry.

Last month, one of Quindell's newest board members, non-executive director David Currie, a former head of investment banking at Investec, bought his first tranche of shares - 19,500 at 127.5p. Non-execs Robert Burrow and Robert Bright, and divisional heads Robert Fielding and Tim Scurry have all dug deep in recent weeks, too.

"The board remains confident of meeting full year market expectations and of the company's longer term prospects," explains Terry, who secured loans to enable the latest purchases. Their shares are being used as security against the loan.

Significantly, the provider of the money, Equities First Holdings, is not allowed to short sell the stock, and the fact that it is clearly happy to lend against the shares suggests it thinks the price will not fall much further. That said, it doesn't have to rise much either. All Equities First wants is its money back with interest at the end of the two-year loan period.

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.