running the numbers part 1

I haven't made a posting for some time but I've been running the numbers again in the past couple of days to try and get a handle on what might be coming. I actually think things are looking good but I will back this up with data in a separate posting in the next couple of days.

Meanwhile, I thought I'd do a quick post to summarise where I think we are at with our beloved Centro.

Firstly, in just over a week it will be the 4 month anniversary of the announcement on 17th December. That's right, 4 months.

In this time we have had all manner of ups and downs, but in amongst all this (to Centro's credit) there have been some constants:

1. Aside from Andrew Scott getting the flick and Uncle Glenn taking over, we have seen no resignations or sackings from the directors or senior team. Witness AFG, Opes, Tricom, etc. all of whom are in a world of pain and all of whom have directors and senior staff either out the door or under some serious regulatory scrutiny. Some people are in so much strife they aren't allowed to even leave the country. I don't see any of that happening to CNP.

2. Centro announced the intention to develop a strategic plan right from the beginning and this has been the roadmap they have stuck to all the way through. Witness how AFG, ABC, MFS, etc. are having a fire-sale of assets to raise much needed cash. CNP announced it would consider sale of CAF, CAWF or equity injection and this (even 4 months later) is still their game plan. If CNP was so deep in trouble, the banks would have forced a quick sale of assets (a la AFG) by now. I haven't witnessed any of that, in fact Glenn said 'no fire sale'.

3. We have a strong underlying business that is generating good income. The write-downs we saw at half-year were primarily non cash items. The services business in particular is very strong. Even if the value of assets deteriorates, CNP has high quality tenants on good leasing terms. It also does not have any single tenant that dominates the book. Assets values are cyclical and as Glenn said at the HY review, they will appreciate in value again on the next cycle.

4. The Australian banks are very, very scared of taking any actual loss. As you would have witnessed on Monday, ANZ booked a total provision of $975m part of which included Centro. I sat in on the call with the CEO and CFO and it was obvious that they knew the potential for loss (plus Opes, Tricom, etc) were weighing heavily on sentiment towards the bank. It is very important to realise that the bank has made a PROVISION in line with Basel II requirements, it is not saying it will be a realised loss. ANZ has a vested interest in keeping CNP afloat so that it can write-back the provision once CNP is back up and running. When is the ANZ bank year-end? Erm, September 30th... now there's a coincidence. I'll leave you to work out the rest.

After today, we only have another 14 trading days in which Centro have to make an announcement. Despite previous form, I don't think they are going to want to leave this until the last minute which to me would signal something pre-ANZAC day.

If Centro was going to the wall, we wouldn't have lasted 4 months, we would have seen an exodus of people, a fire sale of assets, regulatory intervention and NO extension from the US Banks. I think the bullish sentiment in the past few days is signaling a realisation of this in the market.

(I just wish the price would go back to mid 20s so I could load up on some more!)