CNP - Centro Properties Group

[Joe Blow]

Today was a good day for CNP. Initially it went 1.5 cents down but at the end of the day gained 2.5 cents from previous closing. I think the day traders have nothing to sell now. The one remaining in the league are the real investor with a long term investment strategy. After 30th may the SP might catch some pace and reach towards 0.50 and above. This is just my personal feeling. I think in coming days they might make some big and price sensitive announcement which will see the SP rising.

cnpwellwisher,

Just a couple of points:

1. You may have a "personal feeling" that the price will "reach towards 0.50c and above" but on ASF personal feelings are not considered to be sufficient evidence of any particular point of view. We need something some more substantial such as some analysis that others can critique.

2. If you think that in coming days "they might make some big and price sensitive announcement which will see the SP rising." you will need to explain in detail why you believe this to be the case. Otherwise it is considered ramping and would be subject to removal from the forums.

Something to consider before posting again.

 

[vida]

I agree with you Lavender. I think the media are making too much of staff resignations (when have they broadcast manager resignations at other companies - unheard of before I would think) Directors comings and goings newsworthy but mere leasing managers who probably had offers they couldn't refuse made by companies head hunting and scoring the more vulnerable and opportunistic, fair enuff & good luck to them. The media is sensationalising trivia when they have nothing else to report.

The hearing on 27 May is a directions hearing nothing more, when the parties with court approval will outline timelines for the whole process, defences, affidavits, requests for discovery and particulars of claim, mediation dates etc The litigation process could take ages and a reasonable commercially viable agreement to settle may be agreed before it ever gets to court. CNP could well be on its way to recovery before the litigation gets that far and plaintiffs could back off and settle up early - who knows what will happen as we have not heard CNP's defence yet.

I think its hard to accurately predict what will happen but CNP is in a gradually strenghthening position backed by the banks and the general market is showing a glimpse of recovery so it is not a bad outlook at all. The litigators are backed by a big fund but with many conditions underlying that which we know nothing of, and the litigation could all fall through before long. The lawyers are taking the case because that's their job and not because they have a case they can definitely win.

I don't feel over confident as there is much uncertainty but I am ready on reasonable commercially logical grounds to hold and be patient with this and trust in Rufrano and his team to not have wasted all their hard work to now.

Birdster,

You sound a bit sarcastic.

I think CNPwellwisher has just made a fair comment/opinion on his/her expectation of the CNP share price. There is nothing wrong with that.

I bet most people here, especially those that have incurred losses on this stock would hope sp to go up, which is a reasonable expectation. This is given

(1). the fact of the sound fundamentals of the business (evidenced by the not too bad US results);

(2). the confidence in the new CEO;

(3) the banks (mostly unsecured) are in the same boat as shareholders;i.e. the May 30 deadline is more likely than not just a time to finalise legal documentation, no big drama is expected.

(4). the recent property sale at above book value prices and the strong interests from bidders; and

(5). the fact that the shares have been dramatically oversold lately by daytraders.

Such solid fundamentals/factors would well outweigh all the short-term negativities /noises (staff resignations, class action litigation/May 27 hearing).

I guess we will just have to be patient, and be more alert to the new developments over the next two weeks at least.


I do hope that people on the forum could more vigorously keep each other informed/updated of any new development, or any observations in major sp movements.

IMO, the forum is a place for people to exchange ideas/opinions, and share information that are beneficial to the members not just financially but also intellectually.


The above is just my view. I have no intention to hurt anyone here.

Thank you very much.

L

 

[gensis1]

I think may30 is a very significant steping stone for centro,because the conditions the banks have set for cnp/cer maybe,more than likely,resolved...(or extended again),which shows to me that after all the extensions centro have had in the past,the banks are unlikely to close on them in the near future,(clear for 4months sept30),and actually,providing their operations are still strong,will give them even more support.(hey the banks have gone this far).
news today in afr article:'centro warns on accounts'

 

[Lavender689]

See the following article from AFR, Not sure about the timing of the issue that the accounts can not be trusted. Anyone has any idea?

They seem to be mainly balance sheet related/non-cash P &L items.

The positive thing is the 9.5% US rental income growth, despite rising non-cash depreciation charges.
---------------
"The most recent accounts detailing rising expenses, linked primarily to depreciation allowances, leading Centro NP LLC to post a loss of $US6.8 million ($7.3 million) compared with a profit of $US27.4 million for the same period in the previous year.

In some good news, Centro said rental income for the portfolio was up 9.5 per cent to $US96.2 million from the same quarter in 2007."

------------------

Source: The Weekend Australian Financial Review newspaper [Page 15]
May 17-18, 2008

Centro warns on accounts
Report: Mathew Dunckley
________________________________________________________________

KEY POINTS


Centro revealed a $3.9 billion funding shortfall in December.


That sent its share price diving from $5.70 to as low as 23.5c.


Its US subsidiary reported rising costs but better rental income.

________________________________________________________________


Centro Properties Group has been forced to admit that its accounts cannot be trusted, as it battles to regain investor confidence.

In startling admissions contained in the first-quarter accounts for its Centro NP LLC subsidiary, filed with the US Securities and Exchange Commission, Centro confessed that its own public statements about its financial position were unreliable.

"We identified material weaknesses in connection with our internal controls over financial reporting that, unless remedied, could have a material adverse effect on our external financial reporting," it said, adding that the situation had not been fixed by the end of the quarter.

"With a failure to achieve and maintain effective internal control over financial reporting, there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis."

Centro has been living at the mercy of its banks since revealing a $3.9 billion funding shortfall in December that sent the company's share price diving from $5.70 to as low as 23.5c.

Angry investors have mounted a class action alleging inadequate disclosure about the company's debt position.

Centro first admitted to its reporting shortcomings in its December 31 accounts, also filed in the US, and flagged problems with disclosure in its operations, accounting and legal functions.

In particular, there were issues in the bedding down of Centro's complex $US5 billion takeover of New Plan Excel Realty Trust.

As previously reported, Centro said it had also had difficulties with its accounting of asset impairment, which resulted in an incorrect reporting of the company's intangible assets.

A corrected version was subsequently issued showing an additional $US77.7 million impairment charge on intangible assets.

Centro's intangible assets were correctly stated in Australia in its half-year result in February.

In the statement, the company said that while its processes might have caused concern it had still managed to produce accurate numbers.

"While this material weakness did not result in any improper accounting by us, management is committed to remedying the deficiency," it said.

It is understood the company included the references to the 'material weakness' at the insistence of its auditor PricewaterhouseCoopers.

A spokesman for the Australian Securities Exchange said the regulator had reviewed the statement and discussed the matter with Centro.

Because the filing applied to an entity that was not listed on the ASX, it was not subject to its disclosure rules.

"The ASX has reminded Centro of its obligations under the rules," the spokesman said. "The company believes that the SEC filing does not affect the integrity of the information given to the local market."

The most recent accounts detailing rising expenses, linked primarily to depreciation allowances, leading Centro NP LLC to post a loss of $US6.8 million ($7.3 million) compared with a profit of $US27.4 million for the same period in the previous year.

In some good news, Centro said rental income for the portfolio was up 9.5 per cent to $US96.2 million from the same quarter in 2007.

That figure was boosted by new acquisitions ($US6.4 million) and a change in the accounting treatment of below market leases (worth $US11.1 million).

Elsewhere in the accounts, there was a reference to the need to pay out unit holders from an existing New Plan deal at a cost of about $US37.2 million by June 27.

During the first three months of 2008, the company also sold a shopping centre and a parcel of land reaping about $US9.6 million.

An Australian Securities and Investments Commission spokeswoman said Centro had continuous disclosure obligations but would not comment on whether it had met them.

Centro shares rose 2.5c to 36.5c on Friday, after a tough week.


Ends.

 

[Lavender689]

Excerpts of an AFR article re cheap takeover targets

CitiGroup reckons a takeover premium of 860% for CNP (36.5c last Friday close)

Apparently, CNP, the high profile victim of credit crunch caused by US sub-prime mortgage crisis is massively undervalued at the moment.

----------------

Source: The Weekend Australian Financial Review - Perspective [Page 21]
May 17-18, 2008

Takeover candidates
Companies that are looking cheaper (assuming 8.5% pre-tax cost of debt)
______________________________________________________________

Company: Allco Finance Group
Industry: Diversified Financials
Shares (millions): 368
Market cap ($m) (1): 156
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 13
FY09e pretax earnings after interest costs (4m) (3): 150
Takeover premium payable (%) (4)=(3)/(2)-1: 1028
______________________________________________________________

Company: Centro Properties Group
Industry: Real Estate
Shares (millions): 845
Market cap ($m) (1): 401
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 34
FY09e pretax earnings after interest costs (4m) (3): 328
Takeover premium payable (%) (4)=(3)/(2)-1: 860
______________________________________________________________

Company: Challenger FSG
Industry: Diversified Financials
Shares (millions): 615
Market cap ($m) (1): 1280
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 109
FY09e pretax earnings after interest costs (4m) (3): 330
Takeover premium payable (%) (4)=(3)/(2)-1: 203
______________________________________________________________

Company: Babcock & Brown
Industry: Diversified Financials
Shares (millions): 370
Market cap ($m) (1): 4753
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 404
FY09e pretax earnings after interest costs (4m) (3): 1106
Takeover premium payable (%) (4)=(3)/(2)-1: 174
______________________________________________________________

Company: Oxiana
Industry: Materials
Shares (millions): 1549
Market cap ($m) (1): 4865
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 414
FY09e pretax earnings after interest costs (4m) (3): 1066
Takeover premium payable (%) (4)=(3)/(2)-1: 158
______________________________________________________________

Company: Qantas Airways
Industry: Transport
Shares (millions): 1790
Market cap ($m) (1): 6390
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 543
FY09e pretax earnings after interest costs (4m) (3): 1360
Takeover premium payable (%) (4)=(3)/(2)-1: 150
______________________________________________________________

Company: ABC Learning Centres
Industry: Consumer services
Shares (millions): 475
Market cap ($m) (1): 679
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 58
FY09e pretax earnings after interest costs (4m) (3): 129
Takeover premium payable (%) (4)=(3)/(2)-1: 124
______________________________________________________________

Company: Caltex Australia
Industry: Energy
Shares (millions): 270
Market cap ($m) (1): 3588
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 305
FY09e pretax earnings after interest costs (4m) (3): 569
Takeover premium payable (%) (4)=(3)/(2)-1: 87
______________________________________________________________

Company: Suncorp
Industry: Insurance
Shares (millions): 957
Market cap ($m) (1): 12488
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 1061
FY09e pretax earnings after interest costs (4m) (3): 1958
Takeover premium payable (%) (4)=(3)/(2)-1: 84
______________________________________________________________

Company: Valad Property Group
Industry: Real Estate
Shares (millions): 1524
Market cap ($m) (1): 1204
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 102
FY09e pretax earnings after interest costs (4m) (3): 189
Takeover premium payable (%) (4)=(3)/(2)-1: 84
______________________________________________________________

Company: ANZ
Industry: Banks
Shares (millions): 1954
Market cap ($m) (1): 39967
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 3397
FY09e pretax earnings after interest costs (4m) (3): 6083
Takeover premium payable (%) (4)=(3)/(2)-1: 79
______________________________________________________________

Company: WorleyParsons
Industry: Energy
Shares (millions): 121
Market cap ($m) (1): 4278
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 364
FY09e pretax earnings after interest costs (4m) (3): 642
Takeover premium payable (%) (4)=(3)/(2)-1: 77
______________________________________________________________

Company: Macquarie Group
Industry: Diversified Financials
Shares (millions): 274
Market cap ($m) (1): 15158
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 1288
FY09e pretax earnings after interest costs (4m) (3): 2248
Takeover premium payable (%) (4)=(3)/(2)-1: 74
______________________________________________________________

Company: St George Bank
Industry: Banks
Shares (millions): 534
Market cap ($m) (1): 12993
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 1104
FY09e pretax earnings after interest costs (4m) (3): 1925
Takeover premium payable (%) (4)=(3)/(2)-1: 74
______________________________________________________________

Company: National Australia Bank
Industry: Banks
Shares (millions): 1619
Market cap ($m) (1): 46814
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 3979
FY09e pretax earnings after interest costs (4m) (3): 6831
Takeover premium payable (%) (4)=(3)/(2)-1: 72
______________________________________________________________

Company: Westpac
Industry: Banks
Shares (millions): 1824
Market cap ($m) (1): 41190
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 3501
FY09e pretax earnings after interest costs (4m) (3): 5693
Takeover premium payable (%) (4)=(3)/(2)-1: 63
______________________________________________________________

Company: Tabcorp
Industry: Consumer services
Shares (millions): 525
Market cap ($m) (1): 5532
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 470
FY09e pretax earnings after interest costs (4m) (3): 749
Takeover premium payable (%) (4)=(3)/(2)-1: 59
______________________________________________________________

Company: Goodman Fielder
Industry: Food, beverage & tobacco
Shares (millions): 1325
Market cap ($m) (1): 2286
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 194
FY09e pretax earnings after interest costs (4m) (3): 309
Takeover premium payable (%) (4)=(3)/(2)-1: 59
______________________________________________________________

Company: QBE Insurance
Industry: Insurance
Shares (millions): 895
Market cap ($m) (1): 20429
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 1736
FY09e pretax earnings after interest costs (4m) (3): 2755
Takeover premium payable (%) (4)=(3)/(2)-1: 59
______________________________________________________________

Company: Harvey Norman
Industry: Retailing
Shares (millions): 1063
Market cap ($m) (1): 3954
Pretax funding cost of equity ($m) (2)=(1) *8.5%: 336
FY09e pretax earnings after interest costs (4m) (3): 517
Takeover premium payable (%) (4)=(3)/(2)-1: 54
______________________________________________________________

 

[Lavender689]

Vida,

Thanks for sharing your view on the litigation.

I am not a lawyer and don't know about the likely developments of this litigation.

However, I think, from what we've heard/read so far:

The inaccurate/misrepresentation in its accounts seem to be mainly relating to:
(a). the reporting of short-term debts under non-current liabs;
(b). the incorrect provisioning for some non-cash items (eg. write-offs of intangibles, and property asset value?)

(can someone add what I am missing here please?)


A couple of points here are:

1. Does such misrepresentation, especially (a). above directly lead to share price plunge/losses by shareholders?

(the assumption here is that for the claims to be totally legitimate, there should be a direct link)

The answer is clearly not, or not totally at least. The situation has been excerbated by the credit crunch. Had it not been for that, and CNP could have renewed its short-term borrowings and nothing could have happened.

2. If it is proven that the directors and the auditors - PWC are negligient in terms of financial reporting itself (forget about the shareholder loss here), their professional liab insurance should partially cover the claims.

It is a separate issue here, directors/auditors not fulfilling their duties.

3. In the worst case scenario, CNP is liable for the payment of claims (though it is not likely to be the inflated amount as claimed by the lawyers), there is always an option for them to set up a claim reserves fund of some sort, which is to be sourced from its future earnings/cashflow, and pay the shareholders gradually into the future.

(James Hardie case -asbestos claims is of a much worse situation, I believe, and they were doing something similar to this? from memory, though from my understanding they were very cunning and re-registered the company in Holland.

Correct me if I am wrong here. )

4. the point here is that shareholders would get nothing/little if CNP goes under.

Assuming some of the individuals/institutional investors joining the class order litigation still hold some CNP shares, they would also suffer more losses if there is too much negative publicity on the litigation, as is happening now.

The key thing here is that, if they want some fruits out of this whole exercise, they should be patient enough to let the tree grow healthily and bear fruit first. Otherwise, they are hurting themselves in a foolish way.

I am sure that the entities/individuals joining the class order litigation are smart enough to know this, and will handle the process appropriately. Otherwise, it is lose/lose for CNP management and shareholders, and the lawyers and the funding firm are the only winners.

5. Given the size and importance of CNP to the retail property trust sector here and in the US, chances of CNP going bust is very remote, as the liquidation sale of its assets would cause significant price contraction to the whole sector. This probably partially explains the government's recent tax reductions for foreign investment in property trust?

6. As mentioned numerous times by other people, the management contracts CNP holds form a large part of the intrinsic value of the business.

7. Additionally, the current complex organisation structure also made it difficult for lenders to liquidate the company.

8. Re recent staff resignation:

IMO, the nature of the job of a centro lease manager is not much of rocket science. The business itself is pretty straightforward and standardised, I presume anyone having spent some time doing this can handle the job well.

It is not a major concern.

(Vida, you are right, the media has got nothing to report and therefore sensationalised such a small matter.)


I presume there are still a lot of uncertainties over the next two weeks, with media unduly fuelling on potential trivial matters/negativities.

We will have to be more observant to the share price movements and get a hint from them. Unfortunately, it is not a perfect market and there are always leakages of info prior to its being known to the public.
Most of us, unfortunately belong to this group. We certainly need to be more alert to any signalling signs/movements.


Let's keep on sharing information on this forum.

Good luck to all of you!

Cheers, L

 

[metric]

Excerpts of an AFR article re cheap takeover targets

CitiGroup reckons a takeover premium of 860% for CNP (36.5c last Friday close)

Apparently, CNP, the high profile victim of credit crunch caused by US sub-prime mortgage crisis is massively undervalued at the moment.

i hope this makes an impact on the market monday. good press on centro is a rare commodity these days.

couple this with the upcomming ann due may 30 (buy on rumour) the sp may continue its green days.

we live in hope.

 

[gensis1]

Companies in centro's situation only need minor 'adverse news' to make the sp tumble...it would take big asset sales, (or a takeover)and a 'turning of the corner' past may30 to make the sp climb...here's hoping..

 

[metric]

i read on another forum that the 860% premium makes the sp worth $1.31.. lol . wouldnt you like to see that close on monday!!??

 

[Lavender689]

The valuation as implied by the takeover premium of 860% is actually AUD3.5/share. Remember the word "premium" here, i.e. the amount above its current price.

 

[gensis1]

I heard the $1.31 is their asset backing..(without including what the management side of the business is worth) cer is $1.65/share

 

[metric]

but is this news? will it have any effect on the market?

lavender; is 3.5/share, $3.50 per share?

 

[cnpwellwisher]

Excerpts of an AFR article re cheap takeover targets

CitiGroup reckons a takeover premium of 860% for CNP (36.5c last Friday close)

Hi Lavender,

I was searching for the above news on the internet, but couldn't find it. If you can please let me know the source. U reckon this is genuine news as before 2 months we had rumours of centro being sold at 90cents/ share which saw the sp rising drastically and then trading halt.
Any effect of this news when the market opens on monday

 

[Lavender689]

Hi CNPwellwisher,

As I mentioned in the post, it is part of an article in weekend AFR (May17-18). It listed AFG and CNP, amongst other companies as cheap takeover targets. takeover premium of 860%, i.e. implying a price of c. AUD3.5/share.

I got it from another forum, someone actually typed it in, which I appreciated very much.

I am not sure whether the surge on Friday to 38c at one time was as a result of this. there are people out there who know things well ahead of the public.

But certainly, what I can see also is that, Merrill Lynch (ML) had a sell recommendation lately with a target price of 26c, which unduly contributed to the recent share price plunge to 33c at one point.

It makes me wonder how ML has arrived at the target price of 26c. It apparently does not reflect the quantum impact of what's happening over the last week also (i mean the positives far outweigh the negatives).

Certainly, recommendation from a big broking firm like them would have a big impact on the market, no matter they are honest and fair in their opinion or not. I guess, even if the price falls to 26c, or 33c as it was on Thursday, you can't say that their predictions are great. The position ML is in/their large clientile/impact makes the market go in the direction as per their recommendation.

I am not sure whether there are any requirements from regulator that make them more accountable for their opinion. They've got to make well grounded recommendations, especially when it comes to target price, rather than just a random discretionary estimate. It is just not fair. It only heops the shorters to reap more profits.

It prompts people to think how there can be such a huge difference between Citigroup's takeover price of c. AUD3.5/share vs ML's target price of 26c.

Surely one can argue that ML is saying a short-term price target (which may incorporate market sentiment), whilst Citigroup's AUD3.5/share is a fair valuation, in their opinion.


It is just crazy the way the brokers work. Does not seem to make sense.

Can anyone pls shed some light on this?

Thanks, L

Thanks,
L

 

[oldblue]

Hi L

I wouldn't worry too much about a broker's report.

'The Australian" carried a story on 3 January which quoted the same ML as valuing CNP as a going concern at a price of between 26c and $2-03.

Hang on! They've been right so far!!!!

 

[Lavender689]

Oldblue,

Thanks for your post.

What I was saying was that with the recent developments, share price target predicted by ML should not be as low as 26c. Back in Jan, when there were too many uncertainties, it was probably fair for them to predict a sp range of 26c to $2.03 as you mentioned above.

I guess now, it should more be a going concern valuation, rather than a liquidation valuation. I doubt that even a liquidation valuation could be as low as 26c, given the asset backing of c.1.31$/share or a bit lower given the asset value reduction, liquidation costs, etc.

It should be noted that financial misrepresentations so far have been relating to the classification of short-term borrowings under non-current liabs, and the amount of non-cash write-offs, which in no way would lead to a price of as low as 26c, IMHO.

It would be interesting to see how SP pans out on Monday with the media report of financial reporting being unreliable, and the Citigroup takeover premium of 860% (implying a valuation of c. AUD3.5/share).

Let's wait and see.

Cheers, L

 

[Lavender689]

I think one thing is that brokers' valuation should be well grounded, not taking into account too much market sentiment, because they themselves already contribute hugely to market sentiment via their recommendations.

 

[vida]

It could be a bit of what comes first, the chicken or the egg. I am a bit nervous about this week and the CNP sp but will just get on with my life as best I can and hopefully the CNP people will get on with business as best they can and all will be well

I think one thing is that brokers' valuation should be well grounded, not taking into account too much market sentiment, because they themselves already contribute hugely to market sentiment via their recommendations.

 

[mapna]

Another sideway day for CNP ... up/down and then sideway ...

I thought with the good article on the weekend AFR, CNP would be very active today from the time the market opened.

Anyway, see what happens tomorrow ... 30/5 is coming soon.

Goodluck to all.

 

[Santoro]

Another sideways day for Centro but also the lowest volume day for a few months......what does this spell for Centro? Indecision in the market place...
where to from here?