Centro (CNP) and Insurance Australia Group

Two stocks I have recently talked about had some newsworthy information today that I thought I would briefly talk about in this post.

Centro (CNP) – Decision time

Following my previous posts on this stock, it has been very volatile and I’m sure a lot of day traders have made and lost a lot of money on it. With D-day now approaching (Wednesday) Centro must get approval from the banks to extend its $4.2 billion debt repayment, or face receivership. There are a number of potential suitors lining up to buy parts of or the whole group, but the key question for existing shareholders is at what price. Also, it is more than likely the banks will consider extending the due date for the debt if there are some serious offers on the table. However, I think after Wednesday the Centro share price will stabilise based on the offer details being made publicity available in the media. This will put a firm floor on the stock price and should reduce the overall volatility.

In a recent note to clients, Macquarie Equities said it had assumed the banks would provide Centro with a further extension, but warned that valuation of the group was "sensitive" to movements in asset values: "We believe the most appropriate valuation [for the overall group] is 0c to 50c per share, as asset values are likely to decline further."

Insurance Australia Group (IAG) – Lower forecast makes a merger/takeover with QBE more likely.

In my recent post on this topic I had a strong position for buying QBE and feel justified given IAG’s reduced forecast. This was due to higher borrowing costs and east coast storm claims which will reduce its insurance margin. The merger now looks more likely given IAG's weakened position. Buying QBE is still the way to profit from this merger in the longer term.