Poor old CER. It's not good being the ugly cousin.I just wanted...

Poor old CER. It's not good being the ugly cousin.

I just wanted to add a few other factors to what has been mentioned.

Most, if not all, margin lenders have taken CNP and CER off the acceptable security list which means existing and new holders can't leverage a holding. When this happened earlier in the year, it led to some forced selling but this seems to have subsided now. The net result though is that anyone who wants to take a large, speculative leveraged position in a Centro entity only has a couple of weapons at their disposal: T+x trading and CFDs.

Forgive me for stating the bleedin' obvious but both of these are high risk.

CFDs can be traded with quite low margin requirements. I had a look at one provider and the margin for CER is just 25%. So, if you have $5k in a CFD account, you can get $20k exposure or about 250k CER shares at 8c. For every 1c that CER drops, you lose $2.5k. Ouch.

If you have a T+x account, your broker may have been kind enough to give you a $20k or $50k limit. With some brokers you can use existing holdings to extend your limit further. You can do the maths on what this means when you are buying shares worth a few cents each.

In the current environment everyone is scared stiff. Really scared. Scared that someone is selling because they know something; scared that someone is manipulating; scared that someone is forced to sell; scared that a large holder is bailing. It's just fear over fear.

Downward momentum on a stock like CER could be caused for any number of reasons. If the order book starts getting thin or people are too scared to put buy orders in, the price can drop quickly. The problem starts snowballing as watchers assume something is happening. You also get smart traders who sell, knowing the downward momentum will allow them to re-enter at a cheaper price. The CFD and T+x holders, faced with big losses, start getting their stops hit which causes even more downward momentum. Buyers evaporate as they know that by waiting they can pick the stock up even cheaper. People assume the market must be right.

Anyone who knows how to play this game is making a lot of money on the way through.

I don't believe this is going to stop until there is a sentiment change towards CER and some stability is restored. Hopefully this will happen by 15/12 with the debt extension but even then, it's going to be a long slog back.

For me the question is less about why the SP went from ~8c to under 7c. The question is when CER does return to favour, what should we expect the market to value the stock at?

If you look at it this way round and come to the conclusion, like we have, that CER is way undervalued (and don't take large, leveraged speculative positions) then when anyone is happy enough to sell you their share at a ridiculously low price because they are scared, you take it.. wait a while for the fear to escalate further... then repeat.