Carnival PLC - Voluntary Pause of the Global Fleet Cruise Operations and Exploring Further Financing Along with Liquidity Preservatives to Weather the Unprecedent Period.

Carnival PLC (LON: CCL) is a leisure travel group, which operates in Europe, Asia, North America, and Australia.

Recent News
On 7^th May 2020, the company said thatPrincess Cruises is extending its voluntary hiatus of international ship operations. Therefore, the group has decided to stop several ship operations until the end of the year 2020 summer season.

On 6^th May 2020, Seabourn released that it will extend the temporary pause of global operations for its 5 cruise ships. 

On the above same date, Holland America Line has taken the decision to cancel all Alaska, Europe and Canada/New England cruises for 2020 and extend its voluntary pause of global cruise operations.

On 5^th May 2020,the P&O Cruises released that the company has extended its temporary hiatus in operations in New Zealand and Australia to 31^st August 2020, in light of on-going travel restrictions driven by the impact of COVID-19.

Trading Update (for the first quarter ended February 29, 2020) – Reflecting an Increase in Revenue and enhancement in Cash Position and Financial Flexibility

In the first quarter of 2020, the company’s total revenues increased to $4.8 billionas compared to $4.7 billion in the prior year. The Group reported a net loss of $781 million (U.S. GAAP) for the first quarter of 2020 as compared to net income for the first quarter of 2019 of $336 million on U.S. GAAP basis due to loss of goodwill and ship impairment charges. Adjusted net income was $150 million in Q1 FY2020 as compared to adjusted net income of $338 million in Q1 FY2019. This includes the cancellation of voyages and other disruptions in the first quarter of the fiscal year 2020.

Share Price Performance

Daily Chart as at May-12-20, before the market closed (Source: Refinitiv, Thomson Reuters)

Carnival PLC’s shares were trading at GBX 940.40 before the market close (at 10:41 AM GMT+1) on 12th May 2020 and were down by 1.77 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 4,080.00/GBX 581.00.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Sales multiple of the CCL Group was 0.5x, and the same multiple was lower as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The long-term prospects of the Group remain strong, and this could be an attractive opportunity for investors to invest in this company for the long term. The company’s total revenue has grown from USD 15,714.00 million in FY2015 to USD 20,825.00 million in FY2019, giving approximately 7.29 per cent growth on a CAGR basis.

Conclusion
The company reported a strong start of wave season with booking volumes for the three weeks ending January 26, 2020, was higher than the last year.The company expected to have a negative impact on its financial results and liquidity due to the outbreak of the Coronavirus. The group has taken several actions to reinforce liquidity such reduction in planned capital expenditure and non-priority operating expenses, while they are pursuing additional financing options. The Group has a decent business model which could drive the growth of the company and could also sustain the development of the company. However, for the seven-week period ending March 15, 2020, booking volumes for the remaining year was below as compared to the last year because of the negative impact of COVID-19.

Based on the decent growth prospects, we have given a “Hold” recommendation at the current price of GBX 915 (as on 12^th May 2020, before the market close at 8:38 AM GMT+1).

International Consolidated Airlines Group SA – Reflecting Strong Business Model, with Disciplined and Flexible approach

International Consolidated Airlines Group SA (LON: IAG) is operating as airline group, headquartered in London, United Kingdom.

Q1 Trading Update (as on 7^th May 2020) - Reflecting Robust Balance Sheet and Adequate Liquidity
The company released an update on the trading performance for the first quarter ending 31st March 2020. With most aircrafts grounded, the passenger capacity declined by 94 per cent in late March. The Company has a robust balance sheet and adequate liquidity position with cash and undrawn facilities of EUR 10 billion as on 30th April 2020. The group is planning to return to service in the month of July and expect around 50 per cent reduction in passenger capacity and expect its Q2 results to be worse than Q1. The loss after tax (before exceptional items) stood at EUR 556 million with a cash balance of EUR 6,945 million as at 31st March 2020.

Share Price Performance

Daily Chart as at May-12-20, before the market closed (Source: Refinitiv, Thomson Reuters)

IAG’s shares were trading at GBX 184.895 before the market close (at 10:26 AM GMT+1) on 12th May 2020 and were down by 0.03% versus the previous day closing price. Stock 52 weeks High and Low are GBX 684.00/GBX 176.35.

Growth Catalysts
China Southern Airlines, British Airways, signed a joint business contract which will benefit clients by adding more destinations between China and the UK with a greater choice of flights and improved frequent flyer benefits.

Conclusion
Most of the Aircraft are grounded; the passenger capacity declined significantly. Once again, the group has shown the strong and flexible model through decreasing capacity progress to reflect market conditions and by additional cost control. The group has a robust balance sheet with adequate liquidity to tackle the situation and have access to facilities from the UK and Spanish Governments and extended RCF (Revolving Credit Facility) to boost liquidity. The group is taking initiatives to improve its cash flows and reduce operating costs.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 177 (as on 12th May 2020, before the market close at 8:15 AM GMT+1).

Easyjet Plc is operating with substantial liquidity amid the challenging market conditions

EasyJet Plc (LON: EZJ) is a low-cost European point-to-point airline company.

On 30^th June 2020, the company will release its H1 FY20 results.

Trading Update for H1 FY2020 (as on 16^th April 2020) Reflecting a Decline in the Number of Passengers


(Source: Trading Update, Company Website)

Driven by an increase in the passenger revenue and ancillary revenue, the total revenue surged by 1.6 per cent to GBP 2,382 million in H1 FY2020 from 2,343 million in H1 FY2019. The reported airline revenue/seat increased by 9.6 per cent to GBP 55.60 in the first half of the financial year 2020 versus GBP 50.71 in H1 FY2019. The group’s reported headline airline cost/seat increased by 5.5 per cent to GBP 59.75 in H1 FY2020 from GBP 56.66 in H1 FY2019.

Share Price Performance

Daily Chart as at May-12-20, before the market closed (Source: Refinitiv, Thomson Reuters)

Easyjet PLC’s shares were trading at GBX 503 before the market close (at 9:41 AM GMT+1) on 12th May 2020 and were up by 0.60% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,570.00/GBX 410.00.

Valuation Methodology
 
Key Risks
Environment and sustainability issues could affect the revenue and profitability of the company. Macroeconomic and geopolitical factors could also affect the performance of the company.

Conclusion
The company has delivered a decent increase in revenue during the first half of the financial year 2020.The company has launched easyJet holidays successfully in the first quarter of the financial year 2020, which could benefit the growth of the company. Recent Coronavirus outbreak had impacted the growth of the company, and further pressure on its revenue and profitability could be seen in the near term. The group expect its LBT (loss before tax) to be in between GBP 360 million to GBP 380 million for H1 FY2020.

Based on the above rationale and risks associated, we recommend investors to keep a “Watch” on the stock at the current price of GBX 513.50 (as on 12th May 2020, before the market close at 12.09 PM GMT+1), with support from few catalysts needs to be evaluated at a later stage.

Cineworld Group PLC – Positioned decently for long-term investment

Cineworld Group PLC (LON: CINE) is a FTSE 250 company which operates a cinema chain globally. The company has around 9,500 screens in 787 sites and serves with nearly 37,482 employees in 10 countries.

The Group is expected to organize its annual general meeting on 13^th May 2020.

Recent News
On 7^th April 2020, the Cineworld announced the suspension of Q4 2019 and 2020 quarterly dividends, to maintain liquidity amid the COVID-19 crisis.

Financial Highlights – Financial Year 2019 (31st December 2019, USD, million)

(Source: Annual Report, Company Website)

As per the annual results of FY2019, the Group revenue increased to USD 4,369.7 million from USD 4,119.1 million in the financial year 2018, driven by an increase in the revenue from the box office and retail business. The gross profit surged at USD 1,620.6 million in FY2019 (FY2018: USD 993.7 million). The group’s operating profit increased from USD 492.9 million in the financial year 2018 to an operating profit of USD 724.7 million in FY2019. The adjusted EBITDA stood at USD 1,580.3 million in FY2019 (FY2018: USD 925.4 million). Further, the rise in net finance costs, declined the PBT (profit before tax) to USD 212.3 million in FY2019 from USD 349.0 million in the financial year 2018. The PAT (profit after tax) attributable to shareholders stood at USD 180.3 million in FY2019 (FY2018: USD 284.3 million). The basic earnings per share stood at 13.1 cents in FY2019 (FY2018: 22.5 cents), while the diluted earnings per share stood at 13.1 cents in FY2019 (FY2018: 22.4 cents).

Share Price Performance

Daily Chart as on 12^th May 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Cineworld Group’s shares were trading at GBX 61.70 before the market close (at 9:41 AM GMT+1) on 12^th May 2020, down by 2.34% against the last day closing price. Stock's 52 weeks High is GBX 296.73 and Low is GBX 18.29.

Valuation Methodology


*Peer: Marston’s PLC, Hyve Group PLC, Playtech PLC and Restaurant Group PLC

*1 USD = 0.812328 GBP

Valuation Metrics

 (Source: LSE)

As on 30^th April 2020, Price/Sales multiple of the CINE was 0.3x, which was lower as compared with the Travel & Leisure industry at 0.6x. Hence, it is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
Diverse geographic footprints, scale and experience of operations makes them lucrative to invest for the long term. Moreover, the group also announced the acquisition Cineplex (in December 2019) which is expected to get completed in the first half of 2020, the completion of which shall deliver synergy benefits.

Conclusion
During the financial year 2019, the Companywitnessed a decline in financial performance. While the revenue surged for the last full year period, the bottom-line performance was down. The prevailing uncertainties presented by Covid-19 restrictions can impact business performance in the short run. Despite challenging market conditions, the group performance has been resilient across all its portfolio. It is focussing on operational performance, cash flow generation, while strictly managing the operating expenses and liquidity, which could assist in navigating the crisis phase. Overall, the company prospects look good to invest for the long term.

The company’s total revenue has grown from USD 797.80 million in FY2016 to USD 4,369.7 million in FY2019, giving approximately 76.27 per cent growth on a CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the current price of GBX 59.20 (as on 12^th May 2020, before the market close at 8:14 AM GMT+1).
 
*All forecasted figures and Peer information have been taken from Refinitiv (Thomson Reuters).

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