ShoreCap sees potential if Carnival sinks lower
Carnival
1,082.50p
16:45 24/04/24
With cruise operator Carnival floundering on Monday, broker Shore Capital remained on an even keel and saw potential for a more positive view if the shares sank any deeper.
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Although the FTSE 100 group had reported record second-quarter revenues and earnings, investors had found it hard not to focus on management's downgraded guidance for the second half.
Balancing the two, analyst Greg Johnson said this implied the outlook for the remainder of the year "remains broadly unchanged", though the strong second quarter means the forward booking position "appears less favourable than during the last few years; at a time when capacity growth is set to accelerate sharply".
He noted that cumulative bookings for the next three quarters were reported “line with the prior year at slightly higher prices”, with volumes “running slightly ahead of the prior year at prices that are in line with the prior year”, with Caribbean market said to be a drag on price.
"This would suggest that there is less scope for material outperformance in yield development for the full year, albeit strong close-in bookings have been a key driver in yield outperformance.
"The concern beyond the current year is that with capacity growth set to accelerate sharply from Q4 and into next decade, whether the group can deliver continued robust revenue growth of 2%+ per annum, which we believe is baked into the current valuation. On this, it was encouraging to hear on the conference call that cumulative bookings for 2019 are 'slightly ahead and at higher prices'."
Seeing the outlook for the remainder of the year remaining "broadly unchanged", Johnson says the crux of the Carnival investment case for him is revenue yield development as industry capacity growth accelerates from next year, with Carnival alone adding over 5% in 2019 and 2020.
Although he retained a 'hold' recommendation at the recent price but, seeing fair value at £49, predicated on 2% annual yield growth over the medium term versus a market that seems to be pricing in 1.5%, Johnson said greater clarity on the 2019 booking outlook or a fall to £40 per share, implying circa 1% medium term yield growth, would be enough to take a more positive stance.