Carnival Share Discussion Threads

[jan-mar] 28/6/2022 16:36

I don't quite understand thisCarnival : Peel Hunt cuts target price to 840p from 1750p * Carnival : Peel Hunt cuts to add from buy So up until today it was a buy now it's add from 1750p to 840p

[smurfy2001] 28/6/2022 14:57

China eases quarantine restrictions

China Cuts Travel Quarantine in Biggest Covid Zero Shift Yet



Stocks edge higher as China eases quarantine restrictions

[jan-mar] 28/6/2022 13:30

Both interesting reads just goes to show different interpretations of the accounts

[smurfy2001] 28/6/2022 12:16

Carnival: Positive Trajectory

Jun. 24, 2022 6:06 PM ET

Carnival Corporation & plc (CCL)

Carnival reported FQ2'22 results showing a positive trajectory in the business, though far from perfect.

The cruise line indicated strong booking trends for 2023 as consumers are able to plan for trips without worries of travel restrictions.

The stock is cheap at $10 with normalized earnings at $3 per share, as debt is repaid and interest expenses are cut.

In no huge surprise, Carnival Corp. (NYSE:CCL) reported a quarter of improving results. The largest cruise line didn't report a perfect quarter, but the company and the sector continues to head back to more normal times in the travel and leisure sector. My investment thesis is very Bullish on the stock after the dip back towards the COVID lows, which was ill-timed considering the dynamics of the business are far improved now.

Positive Trajectory
As already discussed on previous research on Royal Caribbean (RCL), the cruise line sector reached an inflection point in the Spring with a return to positive cash flows. The companies no longer are heading down a path of burning cash and needing to raise additional funds. The only question now is the level of cash flows leading to debt repayments in the future.

In no surprise, FQ2'22 ending in May was all about the company restarting guest operations and filling up boats. Carnival reported that May quarter occupancy reached 69%, and 91% of capacity was back to cruising in June with strong bookings reported for future periods. During the quarter, the cruise line only averaged available lower berth days (ALBDs) at 74% of total fleet capacity in a sign of how far the business was still from reaching a full recovery until the current quarter.

Similar to the airline sector, the cruise lines are now back to near normal operations with capacity slightly below 2019 levels and ultimately headed higher by 2023. The only question is how packed the cruises will be going forward.

For FQ2'22, revenues were up 50% from the prior quarter to $2.4 billion. Carnival still reported a large loss due to the low occupancy in the quarter and restart of operations on several ships leading to higher expenses without the full revenue benefits.

The company was cash flow positive due to a large $1.4 billion increase in customers deposits for future sailings. The total customer deposits are now $5.1 billion.

Back in 2019, May quarterly revenues were $4.8 billion with customer deposits up at $5.8 billion. Clearly, Carnival still has a lot of work to match 2019 levels in a sign that cash flows still have plenty of upside ahead.

As such, the market shouldn't spend too much time focused on the past quarter results with Carnival spending most of the period restarting operations. The cruise line has already increased fleet capacity from 74% as an average for last quarter to 91% for the current quarter pushing the cruise line close enough to full capacity to produce solid financials. Similar to the airlines, Carnival should be able to boost occupancy levels with capacity below 100%.

The market sold off the cruise line stocks over the last month on fears of lowered bookings with recession risks perking up. Carnival admitted some mixed view on near term bookings, but the long term picture was strong with these following nuggets in the earnings release or call:

Booking volumes for the second half of 2022 sailings, since the beginning of April, have been higher than 2019 levels.

Cumulative advanced bookings for the full year 2023 continue to be both at the higher end of the historical range and at higher prices, with or without FCCs, normalized for bundled packages, as compared to 2019 sailings.

Currently, we are seeing success for close-to-home cruises, with many sailings achieving occupancy at or above 100%, where guests perceive far less friction than with international embarkations. In fact, our Carnival Cruise Line brand, sailing its entire fleet, is expected to reach nearly 110% occupancy during our third quarter.

A big reason for the improved booking in the 2H of the year and into 2023 are the relaxing of COVID restrictions, both for flying to foreign embarkments and just general testing restrictions for domestic trips. While the market is focused on some of the noise around recent ship occupancy trends, the trend remains tied to far more normalized bookings in the future.

Bargain Bin
A lot of investors were hesitant to purchase Carnival on the rally during 2021 on valuation fears with the enterprise value topping pre-COVID levels. Due to the higher debt levels and shares outstanding, the market felt cruise line stocks shouldn't match those prior levels on this key metric.

With the recent dip, Carnival now has an EV of ~$40 billion below the $45 billion level pre-COVID. Investors need to be careful using such a metric because the number doesn't accurately reflect the financial position of companies with large asset balances acquired via debt.

Carnival ended May with a cash balance of $7.2 billion and a debt position of $35.1 billion leading to a net debt position of $27.9 billion. The company now spends about $400 million on quarterly interest expenses, above the $50 million pre-COVID.

The cruise line has to eliminate a lot of the debt to reduce the interest expenses and boost EPS. Still, the positive indications from the quarterly report appear to set up Carnival to return to the earnings path from a few months ago where 2024 EPS targets were above $2.40 per share.

The stock was trading below $10 and this is all investors need to understand. Carnival trades at only 4x EPS targets still out a year, but more inline with normalization trends.

Remember, Carnival has the potential for a massive boost to EPS by cutting the interest expenses by over $1 billion annually (net interest expenses were only $200 million pre-COVID). With the share count at 1.14 billion shares, the EPS boost from lowering interest costs alone is at least $1.

The additional share count limits the EPS potential to closer to $3.00 in comparison to $4.50 pre-COVID, but the stock trades at only $10 now compared to $50 pre-COVID. The risks of a recession induced slowdown shouldn't be ignored due to the massive debt levels now, but investors shouldn't misplace fears when signs of a travel slowdown don't actually exist due to pent-up demand.

Takeaway
The key investor takeaway is that Carnival remains on a positive trajectory towards a full recovery. The market is too focused on recession fears while pent-up travel demand remains strong.

The cruise line appears poised to recover the majority of their prior business suggesting a much higher EPS ahead, even if it doesn't match the pre-COVID levels due to higher debt levels and share counts. The stock is just too cheap at $10 with a full recovery insight.

Source:

[grahamburn] 28/6/2022 12:04

Carnival is reviewed in the Tempus column in The Times today. It's a downbeat analysis, but does indeed chime with my view expressed here last night that its debt pile and inevitable projected losses in the medium term will prove a drag on its share price for some time to come.

The main conclusion is:

"ADVICE Avoid

WHY It looks increasingly as if 2022 is going to be a year to get through, and it will be worth waiting to see if things look better for next year"

Obviously not possible to provide the full article on here due to copyright issues - that is here but behind a paywall:

but here are few selected quotes:

"The retiring chief executive of Carnival made a telling distinction when presenting the cruise operator’s latest update on Friday. “While not recession-proof,” Arnold Donald said, “our business has proven to be recession-resilient.” However, like the difference between waterproof and water-resistant watches, this raises questions about how resilient it might be and how long it will take to shake out a recession’s pernicious effects.......

While the shares of most consumer-facing companies achieved at least a half-hearted V-shaped recovery that year, Carnival’s have chugged along between 614p and £18. They closed yesterday at 761½p........

Dig down and Carnival admits that Covid and its effects are having “a material impact on the company’s business”, both in terms of bookings and staffing......

In the three months to May.... it suffered a net loss of $1.8 billion, compared with a $2 billion loss this time last year.......

Revenue of $2.4 billion was nearly 50 per cent up on a year ago. Occupancy was 69 per cent for the March-to-May period, compared with 54 per cent for December-to-February. That is a vital number, because of Carnival’s high fixed costs in the shape of its fleet. Bookings for the rest of the year are below average, despite discounts. It expects a net loss for the third quarter and for the full year. This is a step back from the first-quarter announcement in March.......

Carnival’s gross margin has been below the industry average for five years. Debt has tripled to $35 billion since December 2019, as it struggled to service a fleet that has been idle for much of that time. And now interest rates are rising.

“We remain concerned about high leverage and refinancing needs, high industry supply growth dampening pricing power, and the macro outlook,” Morgan Stanley said.

Resilient to recession Carnival may be, but when inflation and interest rates are rising, supply chains are erratic and the world is having to become accustomed to a possibly lengthy war, that resilience is limited. Cruises, and shares in them, are eminently postponable purchases."

[the codger] 28/6/2022 09:29

Nice and steady

[sambuca] 28/6/2022 07:25

The post by loganair was an article by Rupert Hargreaves for Moneyweek magazine so he has shared information which others might not have access to.

Sam

[jan-mar] 27/6/2022 20:57

I agree I think the Saudi will be doing some sort of deal for Seaborn

[grahamburn] 27/6/2022 20:48

IMHO, Pierre, until the company's debt ratios return to within a reasonable level of where these were pre-pandemic, then dividends will not - in fact, cannot - be considered. The interest costs alone will ensure that is the case, not to mention the holders of that debt. Any cashflow has to be allocated to paying down that debt. (The only proviso to these comments would be if some of the Saudi debt was exchanged for the "seahold" - better term than freehold! - on Seabourn.)

The trick is - as you have indicated in the past - is to receive some of your return (yield) through the onboard credit given to passengers who hold at least 100 shares. As regular cruisers (not quite as regular as you though!) this gives us a mindblowing return even without the quarterly dividends which prevailed pre-pandemic. Five cruises between August 2022 and February 2024 will provide a notional return of £750 in 18 months going forward. On 150 shares valued currently at £1,150 need one say more......, oh yes, that "return" is tax free as well!

PS (Edit) Of course, if one only held the minimum 100 shares required for the benefit, that would end up being an even better "investment return".

[jan-mar] 27/6/2022 18:34

What you say is factually correct but even the brokers can see the upside in share price, even though they can't agree on what priceShares of cruise operator Carnival Corp fall 4.2%to $10.39* Analysts see co's bigger-than-expected Q2 loss as evidence that higher fuel, labor and consumable costs will impact short-term operating performance and margins* Stifel cuts price target on stock to $20 from $30 due to higher fuel costs and expectations that onboard spending will take a hit during a potential recession* Jefferies says CCL's high debt load also poses a risk in rising interest rate environment; Cuts PT to $12 from $19* 6 of 23 brokerages rate the stock "buy" or higher, 12 "hold" and 5 "sell"; their median PT is $18.50* CCL jumped 6.2% on Friday when it said it expects bookings for the whole of 2023 to be at the top end of its historical range...

[loganair] 27/6/2022 17:34

In the first year of covid Carnival only weathered the ordeal because it was able to raise $23.6bn from debt and equity investors in less than 12 months.

One figure illustrates the scale of the crisis the company faced. In the quarter to the end of August 2019, Carnival’s sales totalled $6.5bn; in the same period a year later, it earned just $31m.

Two years on, the company is still struggling. According to its second-quarter earnings report, group sales totalled $2.4bn in the three months to the end of February. That was up 50% month-on-month, but it’s still a far cry from its pre-pandemic revenue figure.

Consumers are returning, albeit slowly. Five of Carnival’s nine brands now have their entire fleet back in guest cruise operations and, according to management, near-term bookings are set to outpace 2019 levels.

However, recovering booking volumes are really only part of the story here. Even if bookings return to 2019 levels, Carnival is not the same business it was before the pandemic.

A quick glance at the group’s balance sheet shows how much of an uphill struggle it faces in the years ahead. Carnival’s debt-to-equity ratio was 54% at the end of February 2020. Today that figure stands at 350%. Meanwhile, interest costs have increased tenfold. With interest rates on the up, this figure seems unlikely to start moving in the opposite direction.

Then there are rising fuel costs to consider. In March, Carnival warned that surging energy prices would have a “material impact” on its “liquidity, financial position and results of operations” this year, which would likely push the group to a full-year loss.

This is without taking into account the potential hit to consumer confidence from a recession and the cost of living crisis (and the background threat of further waves of coronavirus).

The pandemic left some deep scars on Carnival, and it's not clear how long it will take the company to recover. It needs customers to return in large numbers and spend more than before to generate enough cash to start paying down debt. With costs rising and consumer confidence falling, the chances of it being able to do this look slim.

While it might look as if the business appears cheap at first glance, (the stock is selling on a price/book (p/b) ratio of one) the path forward seems incredibly unclear.

Carnival might return to growth, but it could also continue to struggle and report losses. The market is unlikely to re-rate the stock to a higher valuation if the firm continues to bleed red ink.

[pierre oreilly] 27/6/2022 09:57

Almost every Divi paying company is loaded with debt.Company debt is very different from personal debt.It's funny money.The idea of the stock market Imv is to borrow money at a certain rate to invest so money is earned at a (much) higher rate. The tax system encourages that.

[jan-mar] 27/6/2022 09:07

Long way to go, still sellers about, but starting to look as if it's on its way back

[smurfy2001] 27/6/2022 09:07

Pierre, you’re very bullish on dividends being resumed. What about debt though, seems quite high to suggest dividends won’t be paid for years?

[the codger] 27/6/2022 09:02

But very welcome

[the codger] 27/6/2022 09:02

This retrace was so obvious

[pierre oreilly] 26/6/2022 10:57

I agree triky.I think the ratio of luck to skill varies with time. A day is 100% luck, a year is 90% skill, and perhaps a linear relationship within that. Probably then stays at 90%.Of course during that time there are other price driving events which emerge, and whether those events are +ve or -ve is unknown in advance.I think far higher cash generation is built in already,and I expect divis to be resumed this year. That outlook looks very positive to me.

[trikytree] 25/6/2022 15:23

Pierre, absolutely it was luck. But then I don’t go in blind to any investments so some experience and research played a part. Still lucky tho. As I say it was a small position so not gonna make any difference to me but I’ll keep a close look here now and increase my stake if suitable.

[jan-mar] 25/6/2022 15:02

Time to sit tight as long as Carnival is generating that amount of cash the share price will move up

[pierre oreilly] 25/6/2022 11:41

Don't worry j-m, 99.9999999 of people didn't buy ccl yesterday morning.


The other 0.000001% just get a lucky break, as we all do now and again (and we also get unlucky breaks now and again).

The only ones who bought with an element of skill were fortune tellers, and my experience of those who can foresee the future is that there aren't any. Otherwise they'd be multi multi billionaires

[jan-mar] 25/6/2022 09:29

Well done, easy with hindsight, I was going to top up but saw the shares retreat as soon as the announcement came out, so decided not to, then whoosh.

[trikytree] 24/6/2022 22:59

Opened my first ever position here this morning. Cracking timing. Problem is it was tiny by my standards 😩 I opened new positions here, SBRY and TW. Got my allocations all wrong tho by the looks of it as CCL was the smallest. Oh well, the future looks brighter here and a small profit is better than none. GLA

[the codger] 24/6/2022 22:55

Up 12% on the nyse
Roll on Monday