Murky waters

Pre-pandemic, the travel cruise industry was a rather lucrative one to invest in. The top cruise companies enjoyed profit margins of over 10%, and an ever growing market. Consequently, Carnival enjoyed consistent top and bottom line growth throughout the years.

Then came the pandemic, which nearly destroyed the entire cruise ship industry, as passenger numbers plummeted to levels not seen since 2000. Nonetheless, a sharp rebound in 2021 seemed to indicate that travel may be returning with a bang. Even so, a great deal of uncertainty still lies ahead for Carnival.

Is Carnival getting started?

At the end of last week, management announced its plans to release its Q2 earnings later this week. As such, future bookings will be one of the most important metrics I’ll be paying attention to. The majority of Carnival passengers travel to and from the United States. I’m expecting a decent figure, after the US lifted testing requirements last week.

If a stronger than expected bookings number is reported, I envision the Carnival share price to rebound. On the flip side, a much weaker than expected number could be the nail in the coffin for the FTSE 250 firm. Nevertheless, Carnival shares are up 8% on Monday as investors gear up for the much anticipated report.

That being said, although Covid variants have taken a backseat, another mutation could send the travel industry into another decline. Additionally, persistent economic headwinds are expected to hinder passenger growth in the coming quarters. High oil prices, roaring inflation, and ever increasing interest rates have consumer sentiment pointing towards a recession. These worries were echoed recently by a Morgan Stanley analyst who predicts lacklustre sales for the cruise ship company.

A sinking ship?

Despite the potential upbeat numbers, there’s one thing I can’t ignore about Carnival, and that’s its soaring levels of debt. The company only has $7bn in cash and equivalents, and almost $36bn of debt to repay. While its near-term repayments aren’t too hefty, the figure only gets exponentially higher from here on out.

With the increasing amount of repayments, the firm will have to hope that the industry rebounds sharply and quickly to generate enough cash. Otherwise, I foresee the board issuing stock to raise cash, thus sending the Carnival share price even lower. The alternative would be to refinance its debt, but doing so risks taking on higher interest rates, and a higher total repayment value.

If historic demands returns, Carnival shares may just make one of the biggest comebacks. However, that remains a slim possibility given the current economic landscape. Not to mention, a Bloomburg analyst even red flagged Carnival’s ability to meet repayments. Therefore, I’m doubtful that the Carnival share price can recover from these levels for the foreseeable future. So, I won’t be investing in Carnival shares. Instead, I’ll be investing in other growth stocks that have better financials.

The post Can the Carnival share price recover from an all-time-low? appeared first on The Motley Fool UK.

The company prides itself as being the only company in the world to be included in both the S&P 500 and FTSE 250 indexes. I am curious to understand why the stock is cruising higher.

The bull case for Carnival shares

Carnival released its first-quarter 2021 business update, in which it reported a loss of $2bn. The reason is the halting of operations due to Covid-19. However, the cumulative advanced bookings for full-year 2022 are ahead of 2019. This shows that the demand is very strong for the company. The Carnival share price rose after the announcement, made yesterday.

The cruise ships are expected to return to sailing this summer. One of the advantages of this company is that it has operations in different parts of the globe. This will make the reopening of its cruise lines easier. For example, AIDA cruises started offering short-duration trips around the Canary Islands in March. Also, P&O Cruises (UK), Cunard and Princess Cruises will each offer a series of UK cruises this summer. 

The company has about $11.5bn of cash and short-term investments. The cash burn rate for the first quarter has been better than expected. In tough times like this, it is important to have a very good liquidity position. The company will also achieve cost efficiencies as it has sold some of the older fleets. Further, it will be also adding larger and more efficient ships. This should also help to balance the pent-up demand in the near future.

The bear case for Carnival’s share price

In spite of the strong bookings, the company’s operations might take a couple of years to reach the pre-Covid-19 level. This is because cruises will be allowed to start operations only at reduced capacity. Also, in many parts of the globe, the Covid-19 cases are increasing. The cruise operators in the US are pushing federal health authorities to allow operations. However, as of now, there are no clear dates as to when the US cruises will restart.

The company is expected to report a loss for the second quarter of 2021 and also the full year of 2021. The company’s debt has increased from $11.5bn at the end of 2019 to $31.3bn at the end of February 2021. This led to the debt to equity ratio increasing from 0.45 to 1.58 during the same period. This is practical since the operations are stopped. However, if there is a prolonged stoppage of operations, it will be a concern.

Final view

Carnival has a good brand image. The various brands like Carnival Cruise Line, AIDA, Princess, Cunard, P&O Cruises, Holland America Line, Costa and Seabourn are catering well to customers in different parts of the globe. The strong booking with minimal marketing shows the loyal customer base of the company. For these reasons, I would consider buying the stock for my portfolio.

The post The Carnival share price has doubled: here’s what I would like to do appeared first on The Motley Fool UK.

Of course, Lloyds has benefitted from the sale of the UK government’s stake, which has undoubtedly improved investor sentiment in the stock. That’s because it has shown that Lloyds is viable as a standalone entity and has the financial strength and financial performance to go it alone without taxpayer-backed funds. And, the central reason that has allowed the sale of the government’s stake is a superb strategy of de-risking the bank’s balance sheet while at the same time improving the efficiency and performance of its core business units.

A direct result of this has been a return to profitability and a profit outlook that is relatively encouraging. Yet, despite this, Lloyds continues to trade on a relatively low valuation, with evidence of this being offered by a dividend yield that, at its current share price, is set to hit 4.9% next year. As a result, it would be of little surprise for Lloyds to see its share price rise over the medium term, as investors seek to buy into its continued resurgence. Therefore, now seems to be a great time to buy a slice of it.

Also outperforming the FTSE 100 in the last five years is easyJet (LSE: EZJ). Its shares have risen by a hugely impressive 281% and, looking ahead, further growth looks set to be on the horizon. A key reason for this is a recovering global economy, with demand for passenger jet tickets continuing to increase and, alongside easyJet’s excellent strategy on business passengers, its future growth rate is set to drive the company’s share price higher.

In fact, easyJet is forecast to increase its bottom line by around 11% per annum over the next two years and, with its shares trading on a price to earnings (P/E) ratio of 13.2, it appears to offer significant scope for an upward rerating in 2015 and beyond.

Meanwhile, cruise ship operator, Carnival (LSE: CCL) (NYSE: CCL.US), has also beaten the FTSE 100 in the last five years. Its shares are up by 56% during that time and, looking ahead, its stunning earnings growth forecasts are likely to push its shares significantly higher. For example, Carnival’s bottom line is expected to rise by 60% in the current year, followed by 29% next year.

Clearly, that’s well ahead of the wider index’s growth rate and, despite this, Carnival trades on a price to earnings growth (PEG) ratio of just 0.6. This indicates that its shares offer growth at a very reasonable price and look set to continue the run over the last year that has seen them rise by a whopping 62%.

The post Is Now The Perfect Time To Buy Lloyds Banking Group PLC, easyJet plc And Carnival plc? appeared first on The Motley Fool UK.

Dixons Carphone

The all-share merger last August of Dixons (owner of Currys and PC World) and Carphone Warehouse was well received by the market. The shares have risen steadily from 320p to around 450p today.

City analysts remain keen on the stock after the company released forecast-beating maiden interim numbers before Christmas. The Board also said that integration is progressing well, and that £80m+ of synergies are now expected by 2016-17, one year ahead of plan.

Analysts at Barclays and Investec were among a number of City company-watchers to reiterate positive ratings. Barclays has Dixons Carphone trading broadly in line with the UK General Retail sector on a 2015 calendar-year price-to-earnings (P/E) ratio of 15, but said “we see significant upside risk to our earnings forecasts”. Meanwhile, Investec noted the company’s current modest dividend yield of around 2%, but highlighted “free cash flow increases in FY16, potentially offering scope for further shareholder returns”.

Carnival

Cruise operator Carnival has seen a number of analyst upgrades, both before and after releasing forecast-beating fourth-quarter results on 19 December.

At a share price of 2,932p, Carnival trades on an ostensibly pricey forward P/E of around 20, but Credit Suisse analysts said: “We continue to see [Carnival] shares as attractively valued particularly versus longer-term earnings power in a normalized environment”.

Analysts at Berenberg, which this week lifted their price target on Carnival from 3,000p to 3,500p, “continue to believe there is a new-found determination on the part of the cruise operators to improve returns on capital, which is and remains pivotal in our positive stance on the sector”. The Berenberg analysts also point to a number of other factors, including the continued recovery in the US economy and lower fuel prices, which “leave us optimistic on the outlook for 2015”.

Barclays

Over two-thirds of analysts have been Barclays bulls for 18 months or more, and the company remains the City experts’ best-loved bank going into 2015. Indeed, sentiment has further strengthened, according to financial data website Digital Look, which has 19 of a pool of 25 analysts currently rating Barclays a ‘buy’ — with no ‘sells’.

Analysts at JP Morgan Cazenove said last month that the results of the Bank of England stress tests reinforced its preference for Barclays (and Lloyds). Meanwhile, Numis analysts were single-tracked in naming Barclays as their top banking-sector pick for 2015, arguing that the company is undervalued on core earnings.

In fact, at a share price of 233p, Barclays rates outstandingly on the classic trio of measures used by traditional value investors: price-to-tangible book (0.8x), P/E (9x) and dividend yield (4%). The company also looks great value on the less traditional metric of P/E-to-earnings growth (0.5x).

The post 3 Shares Analysts Love: Barclays PLC, Carnival plc And Dixons Carphone PLC appeared first on The Motley Fool UK.

The government’s pension reforms are one such example. As part of the reforms, the government will scrap the rules that force Britons to buy an annuity with their pension money. Instead, retirees will be able to withdraw money directly from their pension pots. This creates extra disposable income for quite a few older Britons.

Three companies that will, and have already felt the effects of this policy change are Carnival (LSE: CCL) (NYSE: CCL.US), Aviva (LSE: AV) (NYSE: AV.US), and Friends Life Group (LSE: FLG).

So how are these stocks likely to be affected, and are they set to surge in price next year? Let’s take a look.

The hip pocket nerve

Without a doubt, one of the biggest challenges for FTSE 100 companies this year has been the unwillingness of consumers to part with their money. Wages simply haven’t kept pace with inflation. The pension reforms announced by the government have affectively ‘created’ disposable income for older Britons. Those Britons, if they choose to drawer down those savings, could spend the money on holidays. The statistics show that the majority of people who choose cruise ship holidays are in the 60+ age group. It’s a logical conclusion then that a company like Carnival could benefit from the reform to pensions.

Don’t forget too that Cruise ships enjoyed a boost in popularity in 2013. According to the Cruise Lines International Association, the number of British and overseas passengers joining their cruise at a UK port grew 10% in 2013. Also the number of passengers on day visits to one of the UK’s 51 cruise ports jumped by 20%. This Fool believes that that popularity will have grown further in 2014, and will continue to grow next year and beyond.

There are also reports this week in the press of a boom in consumer credit. A holiday is an example of something that is purchased using credit.

From a financial perspective the company’s looking in good shape. It boasts a net profit margin of 25% and return on assets of over 12%. It’s become an attractive investment too for longer-term investors looking for a solid company — the dividend’s been stable over the past few years.

Shaken, not stirred

The government’s pension reforms have also led to a shake-up in the insurance sector. According to The Financial Times, Friends Life’s financial prospects have been damaged by the reforms — causing a sharp drop in sales of annuities. Given that exogenous shock, it seems the insurer was always going to be looking for a “white knight”, and Aviva appears to be that saviour.

Aviva is set to pay a 15% premium in order to build a better business. That includes: 5 million more customers; cash to help fund expansion plans; and the means to raise its dividend faster than would otherwise be possible. Chief executive, Mark Wilson, says synergies will also help save the business around £225 million pounds a year for the next three years.

Where does that leave us for 2015?

The financial services sector in Britain is looking more and more attractive. Net interest margins should improve as interest rates start to rise, while the services sector (which includes the banks) remains by far the largest driver of growth in the UK. While banking stocks set to gain from this, clouds are having over the industry in relation to regulatory requirements and risks in the property market.

It’s worth considering then the option of looking at non-bank institutions. If investors want strong, stable earnings in 2015, and attractive dividend yields, companies like Aviva (and Friends Life) make for an appealing alternative.

Carnival, too, I believe will reside in the 2015 pool of stocks that offer reliable, stable income for investors, and even the potential for some capital gains.

The post Have Pension Reforms Set Up Carnival plc, Aviva plc And Friends Life Group Ltd For Huge Gains? appeared first on The Motley Fool UK.

Carnival Time

It is almost a year since I asked whether Carnival floated my boat. At the time, I was surprised at its expensive valuation. It still traded at 18.4 times earnings, despite its accident-prone recent history, which wasn’t just limited to the notorious Costa Concordia disaster. A string of cruise ships had suffered technical problems, forcing the company to shell out compensation to disgruntled passengers.

I was more impressed by Carnival’s attempts to crack the potentially massive Chinese cruise market. That looked like a wise move, especially since the company still generates 40% of its income from stricken Europe. On reflection, however, I decided to leave my portfolio moored on dry land. And I haven’t missed much. The share price is down 4% over the past 12 months, lagging the FTSE 100 index, which grew 2% in that time.

Cruising Or Bruising?

Yet the last three months had brought back some of the party spirit, with the share price up 12% after the group reported “accelerated progress in Carnival Cruise Lines’ brand recovery”. Q4’s year-on-year decline of 2.1% in net revenue yields was better than expected, management had predicted 3% to 4% in September. Anticipated bookings and net revenue yields were down for 2014, but again, were better than expected.

Better still, the company still generated an impressive $3 billion of cash, despite its challenging year. And with more than 100 ships, and 10 million customers, scale is on its side. That should help it crack new markets. Management is confident that both demand and revenues will increase, and that seems a reasonable assumption, as the Costa Concordia slowly fades from public memory. After all, ships do sink, just as planes do crash. But these days it doesn’t happen very often, and most people accept that.

Shale And Hearty

Several other factors may be moving in Carnival’s favour. Oil prices are lower, and the US shale story, as well as growing Iraqi and Iranian production, could hold them lower. Cruise ship holidays seem to be swinging back into fashion, at least among my friends, and that’s not just a sign I am getting older. Last year a record 1.79 million British holidaymakers took an ocean cruise, up 5% on 2012. That trend has been partly fuelled by cost-cutting, but prices are expected to start rising again. Although an emerging markets crisis could slow expansion plans in Asia.

At 25 times earnings, Carnival is a little pricey for my tastes. But the company has floated off the reefs, and with a fair wind, the share price could sail on. It has a lot of catching up to do.

The post Should I Buy Carnival plc? appeared first on The Motley Fool UK.

Quite a few individual shares did well last week too. Here are three from the FTSE indices having a good time:

Ocado

The turnaround at Ocado Group (LSE: OCDO) is still going strong, as the online supermarket recorded a 36.2p (8.8%) rise to end the week at 447.5p — and today the price is up a further 4.5p to 452p. Ocado shares have now more than five-bagged over the past 12 months, but they have been even higher — the price soared as high as 469p in early October.

While the year’s performance will no doubt have thrilled shareholders, it’s very difficult to put any kind of valuation on the shares right now as there’s no profit expected until the year ending November 2014. And then it’s forecast to be only small, suggesting a P/E of 170. The first-half stage will be closely watched.

Carnival

Cruise operator Carnival (LSE: CCL) (NYSE: CCL.US) appears to be recovering from the Costa Concordia disaster, with its brand slowly being rehabilitated.

Fourth-quarter results this week showed a 2.1% fall in revenue in Q4, but that was better than expected, and full-year revenue is expected to be only “slightly down” on last year.

The share price responded with a gain over the week of 225p (10.4%) to 2,389p. Carnival was looking like heading for a losing 2013, but its shares are now just above the break-even point over 12 months.

Supergroup

Supergroup (LSE: SGP), owner of the Superdry fashion brand, has had a terrific 2013 with its share price having climbed nearly 150% — but it still hasn’t regained the exuberant peaks of 2011.

Last week we saw a rise of 119p (9.3%) to 1,399p, continuing the momentum following first-half results released on 12 December. Revenue was up 21%, with underlying pre-tax profit up 22% and underlying earnings per share up 28%.

The post 3 FTSE Shares You Should Have Bought Last Week: Ocado Group PLC, Carnival plc and Supergroup PLC appeared first on The Motley Fool UK.

But the index of top UK shares is still down 58 points on the week and heading for its third losing week in a row — and moving in the direction of its 52-week low of 5,606 from nearly a year ago. But it’s surely not going to reach a new low again, is it?

Individual shares can, and here are three doing some bottom-scraping:

Tullow Oil

Tullow Oil (LSE: TLW) shares closed on a 52-week low of 975.5p yesterday, though they have picked up 1.5p today to stand at 977p. Over the past 12 months that’s a fall of 30%, though first-half results this year weren’t bad and were in line with expectations — production was up 14%, revenue rose 15% and cash flow gained 16%.

Pre-tax profit was down 41%, but that was in comparison to a prior first-half that saw one-off profits from the disposal of interests in Uganda — underlying profit was said to be “substantially increased“.

Full-year forecasts put Tullow shares on a P/E of 25 and there’s a modest dividend yield of just 1% expected.

Carnival

Cruise operator Carnival (LSE: CCL) (NYSE: CCL.US), owner of the wrecked Costa Concordia, has seen its share price lose 14% over the past 12 months to last night’s close of 2,030p — so far today we’ve seen a small rebound to 2,035p.

At third-quarter time, things were pretty much in line with a year previously — despite the past year having brought boosts to the sector as a whole. Carnival appears to be having problems rebuilding its damaged image, with chief executive Arnold Donald admitting that “some of our current challenges and cost pressures will continue well into next year“.

Forecasts suggest a fall in earnings per share of nearly 20% for the full year.

Esure

Esure Group (LSE: ESUR) shares have not had a great start to public life, hitting a closing low of 223p yesterday before recovering a fraction today to 224.9p. That’s a fall of 29% since the company joined the market in March 2013, though the shares had been rising slowly from their flotation price until first-half results released on 6 August sent them into a tailspin — the biggest disappointment was a lower-than-expected dividend.

But are the shares now oversold? Full-year forecasts put them on a P/E of only 9.5, and the latest forecasts suggest we could still be on for a dividend yield of better than 5.5%.

The post 3 FTSE Shares Crashing To New Lows: Tullow Oil plc, Carnival plc And Esure Group PLC appeared first on The Motley Fool UK.

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The post 2 Stocks Making The News: Carnival plc And ARM Holdings Plc appeared first on The Motley Fool UK.

Here are three FTSE 100 companies reaching the critical date on Wednesday, 21 August:

British American Tobacco

British American Tobacco (LSE: BATS) (NYSE: BTI.US) is to pay a first-half dividend of 45p per share, with next Wednesday being the key date for qualifying. The payment represents a 7% rise over the first half of the previous year, and came after the company enjoyed a 10% rise in earnings per share (EPS), at constant exchange rates, to 111p. Adjusted operating profit was up 6%, to £2.94bn.

The currently-forecast full-year dividend of around 145p would require a similar 7% rise in the final dividend, and that looks like a reasonable expectation on these results. If paid, it would provide shareholders with a 4.2% yield based on today’s 3,456p share price.

Carnival

Cruise operator Carnival (LSE: CCL) (NYSE: CCL.US) released first-half results on 25 June, and showed a fall in revenue to $7.07bn, from $7.12bn in the first half of the previous year. But it did turn in positive EPS of 10 cents, and kept its quarterly dividend of 25 cents per share unchanged with the total for the first half steady at 50 cents. The firm also told us it expected full-year EPS to be down from $1.88 to somewhere between $1.45 and $1.65.

At the moment, it’s looking as if the full-year dividend will remain unchanged at $1 per share, or approximately 65p. With the shares currently trading at 2,476p, that would provide a modest yield of 2.6%.

Capita

Our third for next Wednesday is outsourcing firm Capita (LSE: CPI), which will go ex-dividend with respect to a first-half dividend of 8.7p per share. That was a welcome boost of 10% from the 7.9p paid for the same period the previous year, and a repeat of that rise in the final dividend would yield around 2.6%.

That’s not a massive payment, but the shares are up around 40% over the past 12 months, so the dividend adds a nice sweetener to that. We are looking at a slightly lofty P/E based on current forecasts of 18, but Capita has grown its earnings for five straight years and has two more years of growth forecast.

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> Alan does not own any shares mentioned in this article.

The post 3 FTSE 100 Shares Going Ex-Dividend Next Week: British American Tobacco plc, Carnival plc And Capita PLC appeared first on The Motley Fool UK.