CNP 0.00% 4.0¢ cnpr group

interim results next week

  1. 1,190 Posts.

    I just thought I would drop a few thoughts on the Centro half-yearly report that is coming out next week. It will probably be webcast on the CNP site like last year.

    The report is going to be for the period ending 31st December, which is only 14 days after the Centro meltdown on the 17th. Assuming Centro makes it to end of this financial year, I imagine we will see the full story in August when the annual reports come out.

    If you look at the same report from Dec 2006 on the web site, it's quite brief with basic financials and highlights. I imagine we will see similar again this time round.

    Some of the things to watch out for in the report next week are:

    1. CNP is going to have to take a write-down (via its ownership of DPF and DPFI) for the collapse in the CER share price and the lack of distribution payment by CER in December. DPF has already reported a drop in net assets of $247m and DPFI a drop of $113m. I think CNP equity accounts for both, which means it is going to have to mark down the carrying value by $124m and $75m respectively. So expect to see a one-off write down in CNP of around $200m. Ouch. If CER does end up paying a distribution in future periods and their share price improves, this may all reverse.

    2. They will also have to write down any other co-owned funds, such as CAWF or CAF, which have been impacted as a result of recent events. I couldn't even start to quantify this.

    3. On the flip side, CNP did not make a distribution payment in December which retained about $170m in cash in the business, which was a smart move IMO. We are very interested in what this is being used for and whether the company plans to use this to reduce debt, improve cash flow or return to shareholders at some stage.

    4. I'd expect to see a strong return from the services business and this could well be the stand-out performer of the group. The FUM increased significantly as a result of the US acquisitions and we should expect the services business to improve as a result.

    5. We want to know what is happening with the $33m of non-recourse loans made to executives to allow them to purchase CNP shares. The underlying shares are practically worthless in comparison with their purchase price. I am hoping CNP expensed these as it went along but if not, we need to understand what is going to happen and whether they will be written off.

    6. Did the short-term rollover of lending in December occur at a higher interest rate? If so, we'd only be looking at about 2 weeks of higher interest rate payments but our concern lies in the impact this will have for the coming half.

    7. The company flagged a $40m restructuring cost in December. Will this be taken in December or do we have it to come this half?

    8. I am unsure as to whether CNP will revalue any of the directly owned properties half way through the year. The syndicates did not appear to be suffering any major downturn in values in December which suggests there may be little impact here. Again, we may see the impact of this at year-end.

    I think that the market is going to take a some-news-is-good-news approach to the report, with investors looking for anything that suggests Centro is going to pull through. The main focus of investors of course is going to be on a restructuring update. I think this is going to be an excellent time for Glenn and co. to move on the front foot and restore some investor confidence by giving good disclosure on what is happening.

    Some things to look for in the restructing details:

    1. The Australian debt - can we get a feel for the terms under which the extension was made?

    2. The US debt - ditto.

    3. Status of the US note holders. Apparently CER have now guaranteed the notes. Does this mean there is no longer an issue with the noteholders?

    4. Which one of the 3 options is progressing the furthest – a) Sale of CAWF / CAF b) New Debt facilities c) Equity injection.

    5. The net impact to the balance sheet and future earnings as a result.

    6. Status of hedging of exchange rates and interest rates.

    7. Is there a chance of shareholder / regulatory action as a result of the wrong classification of current debt last year?

    In my opinion, the results announcement is going to be the single most important point in the whole Centro story since December. If investors are convinced that Centro is going to pull through, the current SP makes this one of the bargains of the century. If there is the merest mention of a distribution in the next 12 months, it will be viewed as a significant positive and the SP will go nuts. If the reverse is true, everyone will drop CNP like a hot potato... myself included ... and probably not return.

    Roll on next week.

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