Carnival plc Ordinary US$1.66 (CCL)

Company overview

Carnival PLC was formed as a result of the merger in 2002, between Carnival Corporation and P&O Princess Cruises PLC. It is the UK listed holding company of the Carnival Group (a British-American owned corporation, and the world's largest cruise ship operator) based in the Doral suburb of Miami, Florida in the United States. Originally an independent company founded in 1972 by Ted Arison, the company is now one of eleven cruise ship brands (P&O Cruises, UK and Australia, Cunard, Princess Cruises, Ocean Village, Ibero Crusies, Seabourn Cruise Line, Holland America Line, Carnival Cruises, AIDA and Costa) owned and operated by Carnival Corporation and PLC. Carnival shares are listed in London as a constituent of the FTSE-100 index, with the shares also traded on the New York Stock Exchange.

HL Comment (16 January 2012)

Following the grounding of its cruise ship the Costa Concordia, Carnival subsequently provided an update statement (16Jan2012). Management noted that "it was deeply saddened by this tragic event and its hearts go out to everyone affected by the grounding and especially to the families and loved ones of those who lost their lives". The group also noted that Carnival had insurance coverage for damage to the vessel with a deductible of approximately $30 million as well as insurance for third party personal injury liability subject to an additional deductible of approximately $10 million for this incident. The company self-insures for loss of use of the vessel. A damage assessment review of the vessel is currently being undertaken to determine how long it will be out of service. The vessel is expected to be out of service for the remainder of the current fiscal year if not longer. For the fiscal year ending November 30, the impact to 2012 earnings for loss of use is expected to be approximately $85-$95 million or $0.11-$0.12 per share. In addition, the company anticipates other costs to the business that are not possible to determine at this time.

Negative Points:

• Along with an announced financial impact, management anticipates other costs to the business that are not possible to determine at this time. Any slippage of fuel from the ship could increase the environmental cost of the accident, for example.
• The company could face ligation claims from members of the families who lost relatives. In addition, the ship could prove to be a total write-off.
• The accident may severely impact future bookings.
• The price of fuel remains a major cost to the company. The increase in fuel prices reduced earnings $0.68 per share for the last full year. The company recently implemented a fuel derivatives programme to mitigate a portion of its economic risk attributed to potentially significant fuel price increases.
• The company remains exposed to political uprisings and natural events such as the prolonged conflict in the Middle East and North Africa regions and the earthquake in Japan.
• Currency movements do on occasion work against the company.
• Consumer headwinds for many of the group's core markets remain, including government austerity measures, rising taxes and wage increases which are below the rate of inflation.

Positive Points:

• Management previously noted that "its base of business for 2012 was solid" and that it was experiencing strong booking volumes leading into the wave season, its heaviest booking period which begins in early January.
• Despite the uncertain economic environment, the board previously anticipated a continued slow recovery in yields in 2012, aided by what it believes to be customers’ recognition of its cruises exceptional value.
• Earlier this year, the quarterly dividend was increased from $0.10 to $0.25per share resulting in $670 million of dividend distributions. In addition, Carnival purchased 14.8 million of the company's shares in the open market at a cost of $455 million.
• Carnival dominates the global cruise market, benefiting from strong brands.
• Management remains focused on strategic growth through the addition of two to three new ships per year.

Consensus:

Analyst consensus opinion for now, denotes a strong buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.