DMG downgrades CNA Group (5GC.SG) to Sell from Neutral, cuts target to $0.19 from $0.23; following divestment of 49.9%-owned Standard Water, (tips transaction results in loss of around $19.8 million, accounted for FY10).

“We believe CNA will be mired in losses to the tune of $12.2 million in FY10. While we expect it to return to the black in FY11, it will likely be below our initial forecast of $6.4 million.”

Cuts FY11 earnings forecast to $5.4 million (down 14.8%) to factor in potentially weaker-than-expected core earnings (3Q10 earnings were below expectations, at loss of $1.5 million).

“On the bright side, CNA may declare a special dividend for shareholders, with the sale proceeds. Net gearing would be reduced to around 0.01x and the excess cash would be channelled back into the business. However, investors will probably take a while before revisiting this stock.”

Shares off 4.3% at $0.22.