Overview
Carnival PLC (CCL) is Miami, Florida and London, England-headquartered world's largest leisure travel company. The company is engaged in providing travellers around the globe with extraordinary vacations with the help of a fleet of 102 ships which visits more than 700 ports globally. The foundation for the company was laid by cruise industry pioneer, late Ted Arison, when he established the flagship brand Carnival Cruise Lines, in 1972. The name Carnival Corporation did not come into existence until 1994, and the group has over the years acquired ownership in almost every market segment of the industry. The group attracts around 11.5 million guests yearly, which is equal to about 50 per cent of the global cruise market, which is served by over 120,000 people worldwide and its ten cruise line brands. The company operates several offices across Asia and established its Asia headquarters in Singapore in 2013. The group is dually listed on both the London Stock Exchange and New York Stock Exchange.
The group operates a portfolio of 10 leading brands which offer a wide range of vacation experiences, appealing to travellers of all kinds with many preferences. The portfolio of cruise line includes P&O Cruises (UK) and Cunard in Southampton, England; P&O Cruises (Australia) in Sydney; Costa Cruises in Genoa, Italy; AIDA Cruises in Rostock, Germany; Holland America Line, Princess Cruises and Seabourn in North America; and Carnival Cruise Line. A tour operating company, which complements its primary operations, is also owned by the company - Holland America Princess Alaska Tours which operates in Alaska and the Yukon.

Key Statistics


Management
Micky Arison is the Chairman of the Board of Carnival Corporation & PLC; he was appointed to the position in 2003. He has previously held various management positions as in the group. Arnold W. Donald was appointed as the President and Chief Executive Officer in January 2013. David Bernstein is the Chief Financial Officer and Chief Accounting Officer.

Segments
The company has differentiated its operations in four operating segments: Europe and Asia cruise operations (“EA”), North America and Australia cruise operations (“NAA”), Tour and Other, and Cruise Support. The segments EA and NAA have been grouped according to the similarity of their economic and other characteristics. While Tour and Other segment represent the hotel and transportation operations and other operations, Cruise Support segment represents the company’s portfolio of leading port destinations and other services, operated for the benefit of its cruise brands.

Top Shareholders
 
(Source: Thomson Reuters)

Key Financial Metrics (Q1 FY2019, in $m)

(Source: Company Filings)

Key Financial Highlights (Q1 2019)
Driven by revenue growth from higher capacity and improved onboard spending, the group reported gross cruise revenues of $4.6 billion ascompared to $4.2 billion for the prior year, with gross revenue yields increasing by 5.8 per cent. In constant currency basis, net cruise revenues of $3.6 billion were reported as compared to $3.4 billion, an increase of 4.7 per cent, while net revenue yields increased by 0.5 per cent, better than December guidance of approximately flat. Due to the timing of cost increases and drag from fuel price and currency as compared to the prior year, in Q1 FY19, the income before income taxes declined to $338 million from $390 million reported in Q1 FY18, representing a drop of 13.33 per cent. The group reported net income of $336 million for the first quarter of 2019, as compared to net income for the first quarter of 2018 of $391 million. In the first quarter of 2019, adjusted net income was $338 million, down from $375 million reported in the corresponding period in 2018. Diluted EPS was $0.48 and adjusted EPS stood at $0.49. Unfavourable fluctuation in currency exchange rates and changes in fuel prices decreased earnings by $0.03 per share.

Financial Ratios
 
(Source: Thomson Reuters)

Ratios Commentary
The company's profitability margins improved slightly in the financial year 2018. Although the gross margin was below the industry median, other profitability ratios were better than the industry. Net margin and return-on-equity were reported to have improved considerably. Although both the liquidity ratios grew year-on-year, they were still below the industry's level. Moreover, the improvement has only helped the company to reach levels reported in 2016. Although leverage increased in 2018, asset/equity was still below the industry. Despite a slight increase in asset turnover, it was below the industry, indicating a room for improvement by the company.

Valuation Methodology
Method 1:EV/EBITDAMultiple Approach (NTM)
 

To compare CCL with its peers, EV/EBITDA multiple has been used. The peers are Thomas Cook Group plc (NTM EV/EBITDA was 1.55), Tui AG(NTM EV/EBITDA was 5.61),Sodexo SA(NTM EV/EBITDA was 11.30), Compass Group PLC(NTM EV/EBITDA was 12.77), InterContinental Hotels Group PLC(NTM EV/EBITDA was 13.59). The mean of EV/EBITDA (NTM) of the company’s peers was 8.96x (approx.).

Method 2: Price/Cash Flow Multiple Approach (NTM)

*All forecasted figures and Peer information have been taken from Thomson Reuters.

Share Price Commentary
 
Daily Chart as at April-29-19, before the market closed (Source: Thomson Reuters)
 
On April 29, 2019, at the time of writing (before the market closed, at 11:55 am GMT), CCL shares were trading at GBX 4,079.00, remaining flat against its previous day closing price. Stock's 52 weeks High and Low is GBX 5,030.00/GBX 3,611.00. At the time of writing, the share was trading 18.90 per cent lower than its 52w High and 12.96 per cent higher than its 52w low. Stock's average traded volume for 5 days was 492,875.20; 30 days – 637,186.90 and 90 days – 675,788.37. The average traded volume for 5 days was down by 22.65 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 12.3x as compared to the industry median of 13.3x. The company's stock beta was 0.76,reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £28.88 billion with a dividend yield of 3.82 per cent.
 
Risks Assessment and Growth Prospects
 
Though the company is strategically disposing of smaller, less fuel-efficient ships and is enlisting new, more fuel-efficient ships to its fleet, the company faces a significant risk from an increase in fuel prices. Movements in foreign currency exchange rates will affect the company's financial statements as the company's operations are undertaken in various currencies, all vulnerable to unfavourable currency fluctuations. Demand for company's services and products is highly dependent on world economic outlook, especially of developed countries. Though the economy is expected to grow, the rate is forecasted to slowdown, impacting the demand for luxury products like leisure travel. However, as cumulative advanced bookings for the remainder of 2019 are ahead of the prior year, even with higher capacity, there is less inventory remaining for sale than at the same time last year, demand has remained resilient despite growing concerns in the broader market about slowing global economic growth. Through a consistent strategy of creating demand in excess of measured capacity growth while leveraging its industry-leading scale, the company is on track to delivering double-digit earnings growth and improving return on invested capital.

Conclusion
Compared to December guidance of $4.50 to $4.80 for adjusted earnings per share, the company revised its expectation to be in the range of $4.35 to $4.55. Though the company had to cut earnings guidance due to a steep rise in fuel costs and the stronger dollar, the underlying business remains robust, reflected by strong bookings. Consistent demand trends build confidence in the prospects of the company. Based on strong financials and supported by valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 4,080 (as on 26th April 2019) with lower double-digit upside potential based on 7.60x NTM Price/Cash Flow (approx.) on FY19E cash flow per share and 8.96x NTM EV/EBITDA Value (approx.) on FY19E EBITDA.
 
*The buy recommendation is valid for the current price as covered in the report (as on April-29-19)

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser. Our publications are NOT a solicitation or recommendation to buy, sell or hold.