Boring Watchstone may return cash

After the spectacular demise of former AIM darling Quindell, the phoenix formed from its ashes suffers the opposite problem. Loss-making Watchstone has been range-bound since February, although new management has its hands full knocking this bunch of businesses into shape while a Serious Fraud Office (SFO) investigation rumbles on. At least shareholders are in line for another substantial special dividend.

Revenue from the underlying business - ptHealth, Hubio, Ingenie, Business Advisory Service (BAS) and Maine Finance - jumped 11% to £31.9 million in the six months ended 30 June, and losses shrunk from £32.3 million to £8.2 million, ahead of plan. Underlying losses halved to £6.9 million.

"We have continued to reduce losses ahead of plan and we are now undoubtedly a leaner, more focused and more efficient organisation. Current trading remains in line with expectations," said chief executive Indro Mukerjee.

The physiotherapy and rehabilitation business ptHealth is the largest contributor to revenue at £13.6 million, followed by the newly-created Hubio at £8.9 million and ingenie at £7 million. These three core divisions are supported by the BAS and Maine Finance, which chipped in a combined £2.6 million in the first half.

After a fresh round of disposals to simplify the previously complex and confusing business model, Watchstone is focused on providing technology solutions to the insurance, automotive and healthcare industries.

Only ingenie and its healthcare services - ptHealth and InnoCare - made a cash profit before capital expenditure, at £782,000 and £447,000 respectively. Hubio lost £3.6 million. And, despite settling "historic and exceptional liabilities", there's still £89.2 million cash in the piggy bank.

When Quindell sold its core Professional Services Division to Australian law firm Slater & Gordon for £637 million in 2015, £50 million was locked away in escrow to cover any potential warranty claims. If this is still unclaimed by November, shareholders can look forward to another dividend of £1 per share in the first quarter of 2017. It previously returned £415 million, or 90p per share to shareholders following the disposal.

And the SFO is still investigating Watchstone for the alleged accounting scandal at Quindell, although investors will have been happy to see its long-standing Navseeker litigation resolved in the period.

"We are now closer to a simplified group and expect the next six months to clarify a number of additional historic matters," said the group Friday. "Operationally, we have some exciting opportunities to create value in our remaining businesses through a more focussed and realistic approach and particularly via organic growth and new product launches."

Quindell's new era as Watchstone Group began as its previous life ended: fraught with volatility. Within the first two months the share price shot from 115p to 355p, before a sell-off pushed it back down to 195p.

The shares have been locked in a sideways trading channel since, briefly poking their head above resistance only after news in April of a rebutted takeover bid from Tantalum, an insurance technology business owned by City financier Edi Truell, and Watchstone's full-year results a month later.

Friday's interim results did little to improve momentum, with a 1% shift to the upside leaving the share price range-bound at 222p.

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