Stocks’ Details

Norwegian Cruise Line Holdings Ltd. 

NCLH Closes Senior Notes Offering: Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) is one of the top cruise companies across the globe that is engaged in operating the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. On July 21, 2020, the company stated that it has closed its previously announced private offering of $750 million aggregate principal amount. The secured notes carry an interest rate of 10.250% and are due in 2026. The company plans to utilize the net proceeds from the offering to repay its $675 million senior secured revolving credit facility and related transaction fees and expenses. The outstanding sum will be utilized for general corporate purposes. In another update, the company closed its previously announced underwritten public offering of 19,166,667 ordinary shares at a consideration of $15.00 per share.

NCLH Collaborates With RCL: In another update, NCLH and Royal Caribbean Group entered into a collaborative agreement to develop improved cruise health and safety requirements in response to the COVID-19 led outbreak. 

NCLH Extends Cruise Suspension: On June 16, 2020, the company extended its previously announced suspension of global cruise voyages due to the coronavirus pandemic. The extended cruise suspension comprises three cruise brands for Norwegian Cruise Line, Regent Seven Seas Cruises and Oceania Cruises lodging in the time span from August 1 and September 30, 2020. Nevertheless, the voyage terminations exclude September Seattle-based Alaska voyages. Owing to travel and port restrictions, the company has cancelled handpicked voyages through October 2020, involving Canada and New England sailings.

1QFY20 Key Financial Highlights: During the quarter, the company reported an adjusted loss per share of 99 cents, as compared to year-ago earnings of 83 cents per share. During the quarter, revenues declined ~11.2% year over year and stood at $1,246.9 million, owing to a 13.6% decline in passenger ticket revenues and a 5.6% decline in onboard and other revenues. Total cruise operating expenses soared 20.3% in 1QFY20, due to costs linked with the suspension of cruise voyages and an increase in fuel costs. The company exited the quarter with a cash balance of $1.4 billion, and long-term debt amounted to $8.4 billion.

1QFY20 Key Highlight (Source: Company Reports)

Key Risks: Decline in passenger ticket and onboard other revenues are likely to dampen results, in the coming quarter. Further, the impact of coronavirus pandemic, travel warnings and cruise cancellations remain an overhang on the stock. Moreover, cash burn due to the coronavirus-caused shutdowns, increase in overall costs, foreign- exchange related risks, stiff competition and a debt-laden balance sheet pose some risks.

Stock Recommendation: The stock of NCLH gave a positive return of 34.87% during the span of three months. The stock of the company is currently trading below the average of its 52-week trading range of $7.03 - $59.78. The company is likely to release its 2QFY20 results on 6 August 2020. Debt to equity ratio of the company stood at 1.97x in Mar’20 as compared to the industry median of 1.42x. On the valuation front, the stock is trading at an EV/Sales multiple of 2.9x as compared to the industry median of 1.2x on TTM (Trailing Twelve Months) basis. Therefore, considering the current trading levels along with the upside movement in the share price in the past few months, we have wait and watch stance on the stock at the current market price of $14.66 per share, down by 2.14% on 22 July 2020. Any positive change in the Industry dynamics should be waited for.

Royal Caribbean Cruises Ltd. 

RCL Files for Restructuring: Royal Caribbean Cruises Ltd. (NYSE: RCL) is a cruise company, which is engaged in owning and operating three international brands namely, Royal Caribbean International, Azamara Club Cruises and Celebrity Cruises. On July 6, 2020, RCL entered into a collaborative agreement with NCLH to develop safety standards.

In another update, RCL and Cruises Investment Holding filed for the reorganization of their Spanish Joint Venture known as Pullmantur Cruceros. Notably, Cruises Investment Holding holds 51% of the Spanish cruise line, while RCL holds the outstanding 49%. The filing was made due to the uncertainty caused by COVID-19 pandemic.

Other recent Update: In a bid to stay afloat in the current uncertain times, RCL continues to boost its liquidity by raising an additional $2 billion in senior notes and convertible notes, both of which will mature in 2023.

1QFY20 Key Financial Highlights: During the quarter, the company reported an adjusted loss per share of $1.48 per share, as compared to year-ago earnings of $1.31 per share. During the quarter, revenues declined ~16.7% year over year and stood at $ 2,032.8 million. The company postponed its worldwide cruise operation, which was scheduled to commence from March 13, 2020, which in turn resulted in the cancellation of 130 sailings in 1QFY20. Total cruise operating expenses soared 15% in 1QFY20. The company exited the quarter with cash balance of $2.3 billion. The company stated that as of May 19, 2020, the projected debt maturities for the remainder of 2020 and 2021 will likely be $0.4 billion and $0.9 billion, respectively.

1QFY20 Key Highlight (Source: Company Reports)

Outlook: The company has suspended its guidance, due to COVID-19 led outbreak. However, for the remainder of the year (April 1 through December 31, 2020), RCL expects interest expenses to be between $590 million to $610 million. Further, the company expects cash burns in the ambit of $250-$275 million each month, owing to the suspension of its operations. 

Risks: The cruise cancellations are expected to weigh on the company’s financial performance in the coming quarter. Increase in expenses and stiff competition might be a disturbing factor in the near term. Regardless of RCL’s solid fundamentals and development potential, the coronavirus pandemic has been taking a toll on its performance.

Stock Recommendation: The stock of RCL gave a positive return of 51.28% during the span of three months. The stock of the company is currently trading below the average of its 52-week trading range of $19.25 - $135.31. Debt to equity ratio of the company stood at 1.54x in Mar’20 as compared to the industry median of 1.42x. On the valuation front, the stock is trading at an EV/Sales multiple of 3.5x as compared to the industry median of 1.2x on TTM (Trailing Twelve Months) basis. The company is likely to release its 2QFY20 results on 23 July 2020 which should be keenly observed to understand the performance and impact of COVID-19. Considering the above factors, we suggest investors to adopt a wait and watch view. The stock was closed at $51.45 per share, down by 2.56% on 22 July 2020.

Carnival Corporation

CCL Extends Pause in Operation: Carnival Corporation (NYSE: CCL) operates as a cruise and vacation company, which operates in North America, Australia, Europe, and Asia. On July 22, 2020, the company stated that its P&O Cruises has extended pause in operations across Australia and New Zealand to October 29, 2020, due to current impact caused by coronavirus pandemic. In another update, the company also stated that its Princess Cruises is extending its pause in cruise operations due to the same reason to October 31, 2020.

CCL Closes Senior Notes Offering: Recently, the company stated that it has closed its previously announced private offering of $775 million aggregate principal amount. The secured notes carry an interest rate of 10.5%. The company also completed the private offering of €425 million aggregate principal amount of 10.125% Second-Priority Senior Notes. Bother the notes are due in 2026. The company plans to utilize the net proceeds from the offering for general corporate purposes.

Business Update for 2QFY20: Recently, CCL provided a business update for the second quarter for the period ended 31 May 2020.  During the quarter, the company reported an adjusted loss per share of $3.3 per share, as compared to year-ago earnings of 66 cents per share.  During the quarter, revenues declined from the year-ago period figure of $4,838 million and stood at $740 million, due to shutdowns caused by COVID-19 led crisis. The company exited the quarter with a cash balance of $6,881 million and long-term debt amounted to ~$14,870 million.

Revenues Highlight (Source: Company Reports)

What to Expects: The company is seeing robust demand in advance bookings for 2021, owing to incentives and flexibility in terms of bookings. Coming to fleet size, the company expects 13 ships to be unloaded soon, indicating ~9% reduction in current capacity. Also, RCL expects 5 ships out of 9 ships to be delivered before the end of fiscal 2021. The company has also deferred deliveries for FY22 and FY23. On the above factors, RCL has reduced operating costs and capital expenditures by more than $7 billion annually. It also intends to save more than $5 billion in the coming eighteen months. Further, the company expects cash burns to be ~$650 million each month. It is to be noted that CCL has sufficient liquidity, which will help it survive in an extended zero revenue scenario for some time.

Key Risks: The company expects to remain battered by soft passenger tickets revenues, due to coronavirus led pandemic. Further, increased cancellations in the current scenario might impact the performance of the company in the coming quarter. Rising costs, leveraged balance sheet and suspension of operations adds to the woes.

Stock Recommendation: The stock of CCL gave a positive return of 30.07% during the span of three months. The stock of the company is currently trading below the average of its 52-week trading range of $7.8 - $51.94. Debt to equity ratio of the company stood at 1.00x in May’20 as compared to the industry median of 1.42x. On the valuation front, the stock is trading at an EV/Sales multiple of 2.2x as compared to the industry median of 1.2x on TTM (Trailing Twelve Months) basis. The company is likely to release its 3QFY20 results on 24 September 2020. Considering the current scenario, recent 2QFY20 business update, soft passenger tickets revenues and valuation on TTM basis, we have a wait and watch stance on the stock at the closing price of $15.14 per share, down by 0.33% on 22 July 2020. Any positive change in Industry dynamics should be waited for.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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