Fool's Eye View

[ September 26, 2000 ]

P&O: Full Steam Ahead!

By Christopher Spink (TMFEagle)

Great Titchfield Street, London -- P&O's (LSE: PO.) share price has nearly halved this year. In February the group revealed plans to split its highly profitable cruise division from its lower margin ports, ferries and logistics business. At the same time the company confirmed it would press ahead with the divestment of its random property assets and return surplus cash to shareholders.

Not surprisingly investors welcomed this news at first. It seemed as if the fog was lifting from the group's complicated business. However, certain events have since conspired to spoil P&O's demerger party. In this post Street66 succinctly summarised P&O's problems as they stood at mid-summer.

These woes included having to call its new cruise flagship Aurora back into port on its maiden voyage and seeing competitors' market values slump following a warning from US sector leader Carnival (NYSE: CCL), which owns Cunard, that future yields from running cruises would be lower as the market became more crowded.

Since then, the group has also had to pull the flotation on the Oslo Stock Exchange of its bulk shipping division, Associated Bulk Carriers. And in July it terminated the $400m acquisition of Mediterranean cruise operator Festival Cruises. The rising price of crude oil has also badly affected P&O, a heavy user of the black stuff.

P&O interim performance

Today the group released interim results that might make investors reconsider P&O's position in their portfolio. Evergreen chairman Lord Sterling remains committed to the demerger timetable. The cruise arm will be spun off at the end of October. Shareholders will receive shares on a one-for-one basis as the company floats on the London and New York stock exchanges simultaneously.

The first half results also looked good for the remaining ports and logistics business. Whilst European ferries have suffered a £7m loss (compared with a £19m profit last year) following the scrapping of duty free, worldwide container shipping has more than made up for this, boosting operating profits in the ongoing business by 23% to £148.6m. Sterling eventually wants to list this top performing joint venture with Royal Nedlloyd.

The chairman had soothing words for potential investors saying that the bottom of the cycle had been reached regarding oil prices. He reckons that if fuel prices drop significantly, say back to levels at the start of the year, then the group could save £50m in costs. For long-term investors this could be a time to consider investing in P&O. Overall interim pre-tax profit went up 12% to £192.1m. Once the cruises division sails off, then the mist may lift from the remaining assets.

Where Next?

Jump aboard the P&O discussion board
Lunchbox 3rd Feb: P&O Cruises away
Fool's Eye View 16th March: The New Peninsula and Oriental Steam Navigation Company.