CNP 0.00% 4.0¢ cnpr group

why is the share price so low

  1. 1,190 Posts.
    I have no doubt the hedge funds have had their hand in the cookie jar over the last few weeks, both on and off market. Like everyone here, I hope they get burned in the near future but I remain sceptical as to whether it will happen.

    Aside from the bad guys, I have been thinking about a number of other factors that have contributed to the woes in the CNP share price recently. I know I am stating the obvious with a lot of these, but it's sometimes good to get them all down on paper, even if it's to justify to myself why I am still holding.

    In no specific order:

    1. There is a decrease in new inflows into stocks generally. Some of the money already in stocks, it moving to lower risk, higher return instrument like bonds. With interest rates going up, fixed-interest securities have also become more attractive.

    2. The property sector, and in particular LPTs, is down considerably. Some of this is vicious circle (i.e. CNP brings the whole sector down, which in turn has made people move away from the sector, including CNP). Some of it is due to investor sentiment.

    3. Some of the substantial holders of CNP reduced their position considerably late last year, post announcement. This has led to an increase in the overall supply of CNP in the market.

    4. Most margin lenders, if not all, substantially reduced or removed the LVR on CNP and CER. This has led to margin lenders and investors dumping the stock to cover margin calls.

    5. There has been an information vacuum from Centro which has been filled by uninformed gossip, speculation and the media. In the last couple of weeks, we have only had the announcement regarding the extension on 15/2, and the letter from Glenn ("the Rufrano Refute") in papers on Monday. The company has not managed communications well so people have made their own mind up based on what they have been told.

    6. There has been a considerable amount of day trading in CNP. A number of the day traders I know are reluctant to hold stock overnight, especially under the shadow of high volatility and trading halts. This leads to periods of over-supply.

    7. I suspect a number of small retail investors have also been shorting the stock, either directly or through CFDs. Plenty of posters on HC seem to suggest they do.

    8. Some of the CFD brokers have increased the margin requirement for CNP trades, which reduces the attractiveness of trading CNP CFDs.

    9. Bad news sells newspapers. The popular press has had a field day with CNP which has become the poster boy for how the US sub-prime crisis has hit our shores. Not "tall poppy" but "fallen poppy" syndrome - grind it into the dirt while it is down.

    10. The mums and dads factor: "Honey I read in The (insert name of Fairfax paper) that Centro are going to go bust. Perhaps we should sell our Centro shares before they do."... "Yes dear, I agree."

    11. Anyone who is going to buy a major speculative position in CNP has probably already done so and may not be making substantial additions to it.

    Taking a look at the CNP chart since the carnage on 17/12, I can see a number of distinct phases have occurred which I believe have also left people battle-scarred.

    Wave 1 occurred on 19 & 20th Dec when there was a certain amount of speculative buying by people who thought CNP had simply dropped too far (myself included). By NYE, the stock had closed around $1 and anyone who was still holding was facing significant losses.

    Despite this, a second wave of post-New Year euphoria hit and you will see that every day from 2/1 to 7/1, CNP finished higher than it opened. The second shoe fell on Friday 10th, Monday 15th and Tuesday 16th when CNP went from intra-day high of $1.15 to a low of 46c. I know a number of people who either a) bought during wave 1 and held on OR b) bought during wave 2, who at this point were facing a major loss on their capital. Numerous punters at this point had actually taken the loss and vowed never to return. By 23/1, their decision had been validated as CNP hit a new low of 33.5c.

    In the following 3 days, presumably in the belief that CNP couldn't go any lower (again), a wave of buying took place which saw the price go from intra-day lows of 38c to highs of 78c. Within in week though it was back down to 53c again and has been bashed around by the herd every since.

    So after all this, there is a chance that the only participants left in the ASX CNP market are speculators, day-traders (institutional and retail), newbies, hedge funds, the 250 or so of us who read this HC forum and anyone who has major unrealised losses / loans and simply can't get out. Scarey huh?

    For those of us who are left, essentially our investment decision at this stage is based on whether we think CNP will survive or not and whether we can make money while waiting. An investment decision based on survival or death of a stock is far too high risk for most people. In my opinion, only when something comes along to change this investment criteria, will we see a major shift.

    As an aside, you know a company is in trouble when investors start discussing the book or break-up value of the assets as a major indicator of what the share price should be. I've seen numerous commentators say the CNP net assets are worth $x or they could sell this and that for $y. When a company is in good health, future earnings play a big part in the determination the share price, not break-up value. As proof, during the good times CNP book value was $3-4 but it traded as high as $10 at one point.

    On Thursday, if Glenn & Co. can answer "Will CNP survive?" positively, everyone will focus away from the live/die/break-up-value-method to "What is the future earnings potential ?" If these look good, over time retail and institutional investors will return to the stock and drive the price up accordingly. They will then outweight the speculators and short-sellers.

    Of course if Thursday reveals that CNP will die OR the future earnings are going to be heavily diluted by equity injections, increased funding costs or asset sales, then the fat lady is going to sing loud for a lot of people.

    Finally, as a humorous aside, apparently some high school kids are now using our favourite stock as a noun to describe social outcasts. As in "We don't talk to her any more. She's a Centro !"

    I'm told the definition of "A Centro" is a highly intelligent, hard working person with high quality assets (?), a proven track-record and loads of potential for the future. Presumably her only downfall was that she was caught kissing the wrong boy.

    You know what kids are like.... give it a couple of weeks, everyone will have forgotten her mistake and she'll be back in favour again. Within a year or so, no one will even remember.

    Of course it could have been a lot worse, they could have called her an Allco.....

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