Q: What is your assessment of CNE. Why is it falling so much?
5i Research Answer:
CNE on October 19 cancelled a Columbian gas sales contract, citing increasing legal, social and security obstacles. This crushed the stock as investors worried about its position and relationships with the country. Production will be impacted, and the company's debt is very high (nearly 6X cash flow), which adds even more risk. Its small size and possible tax loss selling are other concerns for potential stock buyers. We consider it much too risky with its current debt level and the dividend is likely vulnerable.