swap, page-3

I'm flattered...

I have held off posting anything for a while because (and with the greatest respect to my fellow Centronians), there has been an awful lot of uninformed, financially unsophisticated drivel being posted to the forum in the last week or so. Not by everybody, but by enough people to temporarily remove credibility from this place.

To be honest, anyone who doesn’t understand what is happening in the CNP market on the ASX at this stage, should either go and educate themselves or simply deposit their hard-earner funds into my account instead (BSB and account number details will be supplied on request).

Now, down to the meaty stuff:

Believe it or not, my view really hasn't changed since just after the meltdown on 17th December. I am still of the opinion that both CNP and CER are going to make it through this awful mess, although I have no doubt they are going to look and feel very different at the other side.

To recap from my posting here - http://www.hotcopper.com.au/post_single.asp?fid=1&tid=616069&msgno=2528671#2528671

1. The old CEO is gone, the new CEO is credible, experienced, articulate and seems to be engaged in solving the problem.
2. CNP has 6 independent, non exec directors, all of whom are still with us. No dummy spits, no resignations.
3. No mass exodus from the senior management team. They were all in the trenches with the CEO last week on the results presentations.
4. Company has a very strong advisory team who are going about the process in a structured, no rush way.
5. Company is still adamant that the options they outlined in the beginning are the only options they will consider. This was reinforced again last week in the anns. No panic, no firesale of assets. If the situation was really that dire, wouldn’t they be flogging assets left right and centre?
6. Cashflow is strong, underlying business is good. Read the results from last week.
7. The company has enough revenue to pay significantly higher rates on their lending if they need to.
8. No action from ASIC, ASX or any other regulator regarding trading whilst insolvent, misclassification of debt, etc. The shareholder class action idea has gone very quiet too.
9. Little or no scuttlebutt coming out from the company itself.

In addition, the banks have extended the refinancing to 30th April / 30th September.

So, if CNP or CER was bust or on the brink, my view is that 11 weeks after the ‘incident’, we would know by now. There is no doubt they are in a whole world of pain, but they are by no means insolvent or unable to be saved.

Now, we are suffering from a few adverse environmental issues at the moment:

1. Sharemarket is taking a nose dive, the US appears to be bordering on recession and value is being destroyed all over the place. Concerns about valuations of properties in the US.
2. There is an information vacuum from the company being filled by the press, speculators and people with vested interests. Having said that though, the financial disclosure level last Friday was high for which the company should be congratulated.
3. The company reported some big negative numbers last week. Did you honestly expect them to be good? This was the perfect opportunity to get all the bad stuff out on the table. I actually reckon they went in harder than they needed to.
4. There are a lot of long-term holders, speculators and short-term traders who have been really, really burned by CNP. A number of them are out altogether for the time being.

So, as a result of this, there just aren’t any CNP buyers around. Fundamentals are (temporarily) out the window. Basic economics has taken over – when sellers outnumber buyers, the price goes down. Until sentiment changes and investors have a REASON to buy, this situation ain’t going to go away. I have a big white gap at the bottom on the bid side of my CNP market depth screen today where there are simply no more buyers.

A while ago I said that the company needs to answer the question “Will CNP/CER survive or not?” Only then will punters move on to the question, “What will it look like and is it worth investing in?”. I though the live/die question was answered ‘yes’ last week but the does not seem to be the consensus view. The company needs to focus on this in the coming weeks.

I am stating the obvious when I say that this all hangs on the good Dr being able to execute a plan to recapitalize the business through asset sales or equity injection. He has a strong team, good advisors and the banks appear to be on-side. All indications last week was that this process was strongly on-track and they had a number of interested parties. They hinted that they could easily sell CAF or CAWF if they needed to, so I suspect they are working on the best outcome without a panic or rush.

I have emailed Glenn twice in the last few weeks, both times to say thanks for the hard work he and the team are putting in and wishing him all the best in the coming weeks. If you really want to reach out to the big fella, you might consider doing the same.