Small Talk: eBay's success makes QXL look overvalued

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The Independent Online

Although the company's performance has improved from the days when it used to be valued at below £10m, the main reason for this extraordinary performance seems to be due to the workings of the stock market and not the underlying business.

Two rival investment companies now control 53 per cent of QXL. Florissant, backed by Icelandic money, has 27 per cent and last year tried to buy the group with a bid of 1,400p a share. That failed and soon after an Israeli consortium called Izaki Group emerged on the scene and quickly built up a 26 per cent shareholding. This stake-building by the duo greatly boosted QXL's shares. In fact, Izaki is believed to have paid up to 3,000p for some of its stock back in May year.

So far, so good. At 3,000p QXL was worth £50m, a racy valuation but not insanely so. However, since then shares in the group have once more doubled and closed at 6,268p on Friday. Market professionals say this further jump is the product of an attempted bear raid on QXL that went badly wrong. After Izaki finished its stake-building, many traders took out short positions in the stock - they sold shares they did not own, convinced they would be able to buy them back at a lower price some time in the future. Their view was that QXL was overvalued.

However, the bears got it badly wrong and shares in the online auctioneer simply held their ground. When it was time for the raiders to close their positions, they found stock was scarce in the market and soon it was they who were paradoxically driving QXL shares higher as they scrabbled to buy them back. In City dealing room parlance, this is called a bear squeeze.

On 9 June, the online auctioneer pretty much confirmed this had happened. It put out a statement saying its soaraway share price was "due to technical market issues not related to the operations of the company". QXL shares are likely to continue to rise as long as there are still bears looking to buy back stock to close short positions. How long this will go on for and how high it will take QXL's valuation is anybody's guess.

But on a fundamental basis, the company is simply overvalued at present. Even if the group gets back its most profitable division - its Polish unit, the ownership of which is the subject of litigation in the former Eastern Bloc country - QXL's shares will still be far too expensive.

SCREEN TEST

Word has it Personal Screening will soon be making its way from the lightly regulated Ofex market to AIM. The UK's leading supplier of approved self-test medical kits is expected to announce its move within the next month. Personal Screening's innovative kits allow patients to test themselves for an array of disorders from home, including diabetes, high cholesterol, prostate problems and a range of sexually transmitted diseases. They are sold in a wide range of high street outlets and by mail order and generally cost between £10 and £20.

CLEARING UP OPERATION

Finally, yet more bullish news is on the way from United Clearing this week. The group, which provides outsourcing services to the mobile phone industry, has won another contract and the deal is likely to be announced as early as today. United Clearing has secured Globalstar Europe Satellite, the world's most widely used handheld satellite phone provider, as a customer.

The coup will come hot on the heels of similar deals with Orange, Hutchison 3G Ireland and O2 Ireland and should mean that the company's full-year results, expected next month, impress the City. Brokers forecast United Clearing to unveil a pre-tax profit of £1m and tip this to soar to £1.6m in 2006. Although the group's shares have soared by 70 per cent since its float last year, there seems to be plenty more upside in the stock.

Adamind looks like a winner

Adamind, the multimedia messaging software group, which floated in February, will post maiden interims tomorrow and investors can expect to see evidence that it is growing strongly. Led by Shailendra Jain, pictured above, it is the world's leading supplier of adaptation software which ensures multimedia messages and e-mails are compatible between different types of mobile handset.

Therefore, Adamind is benefiting greatly from the ever rising number of mobile phone users who are moving from simply text messaging to sending picture messages and downloading content such as news and music clips. Its figures should boast a doubling in first-half sales, putting it on target to achieve turnover of more than $6.5m (£3.5m) for the full year.

Analysts expect Adamind, which was spun out of Emblaze Systems and enjoys the Dutch electronics giant Philips as a major shareholder, to be profitable at the pre-tax level next year. And there should be little stopping it from further profit growth thereafter. More than 90 mobile phone networks, including the US giant Verizon, use Adamind's software, giving it a 40 per cent share of the global market. All looks to be in place to make the group a big winner from the fast evolving multimedia messaging sector.

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