Skift Take

2012 may be the year that Carnival would rather forget, but it made it though and it's better positioned than many of its competitors to make the most of the industry's growth opportunities.

Carnival shares sank by 6pc after the cruise operator reported a fall in 2012 profit and disappointed the City with its outlook for 2013. Have the falls presented a buying opportunity?

Carnival, the largest cruise ship operator in the world, has seen a fall in bookings since the Costa Concordia tragedy in January. In the year to November 30, revenues fell 4.1pc to $11.7bn (£7.2bn) and pre-tax profits slumped 9.3pc to $1.3bn. However, the results were ahead of analysts’ expectations.

The “net yield” at stable currency rates, fell 4.5pc compared with company guidance for a 5pc to 6pc fall. This is an important figure. It is a similar metric to revenue per available room, or Revpar, for hotel groups, so the fall is a negative.

A quarterly dividend of 0.25c was declared. This is in addition to a special payment of 50c announced in November. It is too late to buy the shares to qualify for the special dividend. The prospective yield in 2013 is 2.9pc.

The prospects for the global cruise industry are very bright – as people who take these holidays are one of the largest growing demographics in the world.

According to the Cruise Line International Association, an industry body, the average cruiser is 46 years old and has an annual household income of around $90,000 (£56,000). They are married and take a cruise once every three years. It is also extremely popular with the retired.

Cruise ship penetration is also relatively small, with less than a quarter of the US population ever going on a cruise. Indeed, All the cruise ships in the world filled at capacity all year long still only amount to less than half of the total number of visitors to Las Vegas.

Cruise Market Watch, another trade association, has forecast 4.8pc growth for the global industry in 2013 to $36.2bn. By 2017, 23.7m passengers are expected to be carried worldwide, of which 59.1pc will originate from North America and 27.4pc from Europe.

The real disappointment was its outlook for 2013. Carnival said its expected earnings per share of $2.20 to $2.40, which was below consensus of $2.49.

Management were essentially talking down next year’s expectations, which is sensible given the difficult backdrop.

However, it could also be the company being conservative – it did manage to beat its own guidance last year. Also, the January to March period is the key booking time for cruises, so they may wish to see the data before being more upbeat.

However, Carnival said its European brands continued to suffer from a deteriorating economy.

The net yield in 2013 is expected to grow at the Costa business, after discounting was necessary following the sinking of the Concordia. Growth is also expected in the key US market, but Europe is expected to be weak. All in all, net yield is expected to rise 1.5pc to 2.5pc. The market had been hoping for nearer to 3.5pc.

The shares are up 16pc this year, despite it being the self-professed “most challenging” in its history. This is a reflection of the global scale of Carnival’s business and its strong balance sheet.

Bargain hunters moved in to buy the shares on Friday after Thursday’s plunge, which sent Carnival shares to the top of the FTSE leaderboard.

The shares are also at a premium to US-listed peer Royal Caribbean Cruises, which trades on a 2013 multiple of 12.8 compared with Carnival’s 13. These two companies account for 72pc of the global cruise market.

Carnival is well managed and is operating in a growing market. Hopes for future cash returns should provide support for the shares.

The City is generally upbeat, with 11 out of 19 analysts monitored by Bloomberg having a buy rating on the shares. Only one says sell. Because of the long-term prospects for the sector and the group’s dominant position, buy.


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Tags: carnival, costa

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