This hoo-ha has all come about because of the GSJBW research report which was published yesterday. Our AFR journo has taken this, added in the reports from last week that CBA is the hold out and come up with a story that has made scared Centro holders rush out and buy the paper.
Firstly, I don't think GS are advising any of the parties in Centro, but I'm happy to be wrong if someone knows otherwise. Secondly,
We get daily copies of the GSJBW Institutional Dealing Report in which there was a piece about CER on page 12 from which all of this has probably stemmed.
The document is pdf protected which means I can't copy the entire text. I am also conscious of the fact that it is copyright material. However, in the interests of this being a factual posting, here is my own report of the text:
GS have downgraded their recommendation from 'hold' to 'sell' as was reported in the media yesterday and again today. This would account for some of the downward pressure on the share price yesterday.
They are "increasingly negative about the prospects of rolling the significant debt lines once again on Dec 15th". They base this opinion on the fact that "whilst the debt has been rolled over 3 times already over the past 12 months, no meaningful headway has been made on asset sales or recapitalisation." I am inclined to disagree on the first point, as the company has said many times that there is no fire-sale of assets and they are prepared to only do so when it makes economic sense. The second point is factually correct.
They also go on to point out that the environment for asset sales values is deteriorating "considerably further" over the coming months. They also believe that the lenders will reluctant or unable to roll over financing and essentially the other lenders will be unwilling to step in to make up the shortfall. This is contrary in part to the messages coming from the company who said a week ago that no lender has said they won't extend.
They then say that "even with another rollover" the brand damage is irreparable meaning that the businesses have no "meaningful option but to liquidate". You can make your own mind up on whether customers and other stakeholders of Centro perceive there has been irreparable brand damage done.
They obviously have no inside information that the rollover won't take place or else they wouldn't then go on to say "even with another rollover".
There is then a recommendation that investors sell.
They then go on to give FY09 and FY10 EPS forecasts for the group (12.7c and 11.5c respectively), which I found strange given they are predicting it will fall over. In a final point, they then give a 12 month share price target price of 14c for the group. I can't understand why they wouldn't suspend estimates on all these metrics.
At the top of the document is the following disclosure:
"This report is produced by the Sales and Trading department and is not the product of the Investment Research Department".
I have a lot of respect for GS as an organisation but as I have said before, I only use analyst reports to supplement my own research and to see if I have missed anything.
From reading the GS report, there is nothing new in here which causes me to change my view NOR to think that GS have any inside information on the situation.. CNP and CER are exceptionally high risk investments and have been for some time.
CNP Price at posting:
6.8¢ Sentiment: Buy Disclosure: Held
