Late yesterday afternoon, the think-tank here at Swap & Co. decided to have a mini pow-wow and throw around a few ideas on what we should be looking for in the announcement when it arrives.
So we sent one of our trusty crew over to the mainland to pick up some alcoholic grape juice and a box of our favourite baked (not fried) savoury snacks. With whiteboard and pens in hand, we set to work.
We came up with two groups of issues were are interest in:
Group A are those that require immediate action or comment. i.e. in this upcoming announcement today or tomorrow. These are important and urgent.
Group B are those which we need action or comment on by the time the annual report is published around July this year. These are important but less urgent.
We put a lot more detail and some numbers around these but in the interests of brevity, I'll give you the high level points.
Group A
1. Cashflow, cashflow, cashflow. Not income, CASH. We know the company is running short, what is the situation and what is being done? With the funds stopping distributions, how is CNP managing cash?
2. It goes without saying that we need an update on the debt extenstion from the Australian banks. Consensus view is that we will see a 5 month extension which will line up with the already-announced US banks.
An extension of less than this would be bad news in our opinion, conversely a long extension of, say, a year would be excellent news. We imagine market reaction will be directly proportional to length of extension.
We are very interested in the covenants that might exist in the loans, although the company may not disclose these. Of great importance is whether banks have secured the lending against assets.
We also want guidance on the new interest rates being charged, rate/FX hedging and what the impact is on earnings.
3. We need an update on the US Note holders who also fall due today. $450m is easily overlooked by commentators when you are dealing with billions. Our view is that they will fall into line with the Aus bank extension.
4. A detailed explanation of the 'strategic plan' that was commenced in December last year. In our opinion, 4 1/2 months is sufficient time to research, develop and communicate the plan to investors (after all, major world conflicts have been resolved in less time). This should contain details of what is being done and a roadmap with timelines. We need confirmation that the company is in control.
5. An update on the three options outlined previously: sale of CAF, CAWF and the equity injection. Even now, I still remain sceptical as to whether there have been offers for the entire group but we are of the opinion that offers for equity injection have been made and potentially rejected.
In the past week or so, the breakup of CAWF has been put on the table by both the company and commentators. We should expect to see a lot more detail on exactly how this is going and whether the company is considering the syndicate route I wrote about previously. CAF seems to be on the backburner with even the company saying the process had started later. I think this is more to do with an inability to sell the assets at the right price that delay by the company. There is a chance we may not see CAF move for some time.
6. How is the company going to handled DPF/DPFI? Will they be opened up again? Very,very complicated issues here especially around sales of CAWF and CAF.
7. We would expect to see how the company is going to get cash out of CER. There is a chance CER may pay a dividend to get cash into CNP, which is great for investors and the SP. Remember CER is in much better shape than CNP.
8. Guidance on earnings for the future. We expect to see the company reinforce that the underlying business is performing well.
Group B
1. We are very concerned about the staff situation. Engaged staff = Happy customers = Superior financial results. The company mentioned staff departures so what is being done about this and what qualitative and quantitative metrics exist to give investors comfort here?
2. We expect to see the departure of Chairman Brian Healey and one or more of the directors once the dust her settled and the company starts getting back on its feet. There have been no departures to date, which is GOOD, but in time they will need to move on.
3. What is happening with Super LLC? If you listened to the 1/2 year Q&A session you would have heard CNP has given a $1.7bn guarantee to Super LLC lenders (and you all thought there was no secured debt?) We have no further details on this but if Super LLC goes under, it will take the whole of CNP with it.
4. Litigation. We are not lawyers but are of the opinion that the current threat of litigation will not succeed through either: a) lack of investor interest b) difficulty proving the case c) the dangerous precedent that could be set. Only time will tell. I imagine we will see the company make a provision for this which will make a dent in the current earnings.
5. Property revaluations with particular focus on the US where 2/3 of the assets are held.
I am sure you will be able to come up with a number of your own in addition to these. As I said, we put a lot more detail around them but this should give you some idea what to look for.
The absence of updates from Group A should arouse suspicion if you are taking a long term view of your CNP investment.
CNP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
