Sun, sea and all-round princely comfort - cruises have experienced a real boom in recent years. While the industry counted 17.8 million passengers worldwide in 2009, in 2019 it was already two-thirds more. But in 2020 came the Corona virus and with it the virtual standstill of the ocean giants. Gradually, however, hope is spreading again: Equipped with specific hygiene concepts, the first ships are setting sail.
Carnival, the world's largest cruise operator, also wants to finally feel water under its keel. Although the re-launch in the USA scheduled for the end of April was recently postponed, the first departures from ports overseas are due to take place in June. In Asia and Europe, on the other hand, a number of luxury liners are already underway. Subsidiary AIDA Cruises, for example, recently extended its cruise season with AIDAperla in the Canary Islands until mid-May 2021.
To meet the pent-up demand for post-pandemic travel, Carnival tapped the capital markets several times in recent months. As long as the bulk of the 107 ships are anchored in port, the Miami-based company is burning a lot of money. In the fourth quarter of the 2019/20 fiscal year, which ended on November 30, the company lost USD 500m every month. For the first quarter of the new year, the board even expects the burn rate to rise to USD 600m.
Ultimately, Carnival ended the 2019/20 financial year with a record loss of USD 10.2bn. Armed with fresh cash, the previous financial year ended with a cash balance of USD 9.5bn, the company assured it could continue to stay afloat. According to Chief Financial Officer David Bernstein, Carnival has enough liquidity to sustain itself in "the course of 2021, even in a non-revenue environment."
It's not supposed to get that far, though. Even if the reboot is still a long time coming, CEO Arnold Donald hopes that in the wake of low-cost testing, as well as improved Covid 19 therapies and rapid distribution of vaccines, the entire fleet will be back in service by the end of the current fiscal year. Another ray of hope comes from the UK, which wants to allow cruises in its waters again from May 17. However, the boss does not expect any big leaps in the near future. In his view, the sector is in for at least two more tough years. Not until 2023 does Donald expect the industry to return to the level it was at before the virus crisis.
So the lean period will continue for a while and this is likely to be reflected in Carnival's balance sheet. The analyst consensus expects a loss per share of USD 13.20 in 2019/20 to be followed by minus signs in subsequent years. The median estimate for this year is USD -4.45, in 2021/22 it is expected to be USD -0.07 and only in 2022/23 (USD 1.43) is the company expected to break even. Given these prospects, it is not surprising that the average rating of 19 studies currently results in a "hold" recommendation.
In the capital market, vaccine hopes drove Carnival & Co. share prices significantly higher recently. Since the beginning of February alone, the share price of competitor Norwegian Cruise Line has risen by 17%, while Carnival's share price has even risen by around a third in this period. In order to achieve a double-digit percentage return with the new Softcallable Barrier Reverse Convertbiles, Carnival's stock may sail around on calm seas. The products are equipped with above-average risk buffers of 45%. Consequently, the underlying would have to fall by just under half to jeopardize the maximum return. The CHF version offers an attractive interest rate of 15.00% p.a. with a maximum term of 15 months, while the product denominated in US dollars even has a coupon of 16.00% p.a., which is one percentage point higher.
The Softcallable BRCs are therefore designed for investors who expect Carnival's shares to move sideways in the coming months. If the high risk buffer is again not sufficient and the barrier is breached, the closing price will determine the outcome of the investment. If the underlying makes a comeback to the starting level by the end of the term, the full nominal amount is paid out in addition to the guaranteed coupon. Otherwise, the redemption is based on the performance of the Carnival share. Due to the soft callable feature, the term of the products can be shortened to a maximum of six months.
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