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When will Carnival shares be worth buying ?


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Hi All, hope you are keeping shipshape ? Just looked at the price of Carnival shares, down to just above £8.50. When or if do they become worth buying. They have I believe about $6 billion dollars, but debts of $30 billion, some I believe at repayment of 10% interest. Are they seriously in danger of being cast adrift by way of bankruptcy ? Whilst many like myself look forward to the day when cruising is back to normal that doesn't by reports on this forum look like anytime soon and the longer that crew shortages, wearing of masks, having to spend too much time messing about with Apps to book theatre shows and restaurants the more it will put some off. At the same time you have the added pressure of the costs of running these ships and the fact that many are finding less in their pockets due to inflation. A perfect storm perhaps ?

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14 minutes ago, Cruisemeister2002 said:

When or if do they become worth buying.

Only you can answer that. At the current price if you have a spare couple of grand then I would consider buying as I would expect them to rise significantly within the next couple of years - but that is only my guess.

 

17 minutes ago, Cruisemeister2002 said:

Whilst many like myself look forward to the day when cruising is back to normal that doesn't by reports on this forum look like anytime soon

Having just spent the last four weeks on Britannia I would say that cruising is 90% back to pre Covid times.

18 minutes ago, Cruisemeister2002 said:

wearing of masks

Only time I have worn a mask is when requested to do so ashore, and that is only twice.

 

19 minutes ago, Cruisemeister2002 said:

having to spend too much time messing about with Apps to book theatre shows and restaurants

No need to use the My Holiday app at all if you don't want to. You can still get a pager for the restaurant and no need at all for the theatre, or any other entertainment venue.

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Good question, but as always with stock market investments impossible to answer. The price now obviously represents what investors as a whole think the shares are worth, and without insider knowledge there’s no reason to think they’re worth more - or less.

 

It’s a straight gamble. I thought they were worth buying at a much higher price - but I was badly wrong, and I always have been when buying shares primarily for the perks. It’s not a good policy.

 

As always with shares, ask whether you can afford to lose the lot (that’s the big risk here), and whether you’ll pick up sufficient in shareholder benefits to make that risk worthwhile. I feel there’s still a lot of downside in that price, but I’m almost invariably wrong!

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At the current share price it’s only going to take 6 x 14 night cruises to recover all your outlay and move into £150 per fortnight as “free money” for every cruise thereafter

BUT

a) that assumes shareholder obc is not withdrawn (I don’t think they could consider that, as, surely, it would result in lots of shares being cashed in and the price tanking even more - but who knows?)

b) there remains a risk that Carnival does not survive, whereupon you lose all your investment 

 

It all depends on your financial position and your attitude to risk

 

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No - not months.

You need to apply, with proof of share ownership, at least 4 weeks before your cruise.  I’d suggest applying as soon as the deposit is paid but if you buy your shares after that time, that would be OK - subject to the 4 weeks

 

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1 minute ago, davecttr said:

They were over 2000 when I bought mine, had my moneys worth already though

Similar price for us, but I wrote the purchase price off immediately, however I reckon in OBC  and dividends they dont owe me anything anyway.

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Taken from the Princess forum :

Bloomberg issued a warning about the rising cost of debt and questioned Carnival's ability to meet its interest payments -- a note that sent the stock falling.  

 

Also, Morgan Stanley on Wednesday issued its own warning about Carnival's debt load.

Unsurprisingly, Carnival stock fell in response.  Morgan Stanley cited weak sales, growing economic risks, and the rising cost of interest on debt as the three biggest risks to Carnival.

 

The Morgan Stanley further warned that investors can expect Carnival will require more cash to tide it over until conditions improve in the cruise industry.  Increase in bookings for the next 2 quarters would help ease the pain.  MS stated if things don’t improve expect Carnival to raise cash by issuing more stock.  Last quarter, Carnival reported operating losses of over $1.0 billion and negative free cash flow of $1.0 billion. As such, Carnival wasn't generating any of the cash needed to pay its $368 million in interest costs and had to go further into debt. 

Macrotends.com reported on Carnival the following --

Quarter ending February 28, 2022 was $29.887B, a 12.69% increase year-over-year.

Carnival long term debt for 2021 was $28.509B, a 28.83% increase from 2020.

Carnival long term debt for 2020 was $22.13B, a 128.73% increase from 2019.

Carnival long term debt for 2019 was $9.675B, a 22.51% increase from 2018.

 

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Doesn't sound great, but I suppose many businesses are in a similar situation. Surely the fact they have made it this far and things are getting back to normal-ish then hopefully the situation will slowly improve?

 

I always remember chancellor George Osborne saying about mending the roof while the sun is shining. The amount of debt even pre Covid suggests Carnival maybe weren't doing that. I bought shares recently around the £10 mark. I try not to look at it too much as I know it's only going one way at the moment. We've got a cruise booked for July and next year as well. Possibly will book another so I figured the obc will balance any losses and don't think my outlook on that has changed. If things improve, it will be a bonus rather than me expecting it to at the moment.

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6 hours ago, terrierjohn said:

Similar price for us, but I wrote the purchase price off immediately, however I reckon in OBC  and dividends they dont owe me anything anyway.

 

6 hours ago, davecttr said:

They were over 2000 when I bought mine, had my moneys worth already though

  
Only if you ignore the “opportunity cost” of not investing elsewhere. That £2000 invested in an index tracker wrapped in an ISA would be worth a lot more now. Especially with dividends reinvested…

 

19 hours ago, Harry Peterson said:

 

It’s a straight gamble. I thought they were worth buying at a much higher price - but I was badly wrong, and I always have been when buying shares primarily for the perks. It’s not a good policy.


Indeed. 
 

The OBC is nice to have but not an overly generous perk. You could get a similar financial benefit paying for your cruise with a cashback credit card without risking a significant chunk of capital. 

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56 minutes ago, funinhounslow said:

 

  
Only if you ignore the “opportunity cost” of not investing elsewhere. That £2000 invested in an index tracker wrapped in an ISA would be worth a lot more now. Especially with dividends reinvested…

 


Indeed. 
 

The OBC is nice to have but not an overly generous perk. You could get a similar financial benefit paying for your cruise with a cashback credit card without risking a significant chunk of capital. 

What I believe is me and many other cruisers bought Carnival shares for was to increase our enjoyment of cruising through shareholder benefits with the dividends being a secondary consideration and those benefits were available immediately we cruised with Carnival. It was not an exercise in increasing my net worth over an extended period. If I had invested in that ISA I would have to cash it in to realise any benefits and meanwhile would have been spending money aboard instead. It is down to a different mindset. I am not interested in increasing my net worth over a long period because frankly  as my mother used to say "there are no pockets in a shroud" A difference in emphasis. I have enough capital to see me out and if there is any left it will go to charity.

 

 

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2 hours ago, funinhounslow said:

 

  
Only if you ignore the “opportunity cost” of not investing elsewhere. That £2000 invested in an index tracker wrapped in an ISA would be worth a lot more now. Especially with dividends reinvested…

 


Indeed. 
 

The OBC is nice to have but not an overly generous perk. You could get a similar financial benefit paying for your cruise with a cashback credit card without risking a significant chunk of capital. 

That depends on circumstance, I bought the shares for OBC many years ago and have received more in OBC than the shares are wort several times over. In the 3 years between retiring and covid I received OBC of almost the value of the shares plus the divi. However for anyone who payed for the shares when they were much higher priced that donot cruise a lot then not such a good investment, you win some you lose some.

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2 hours ago, funinhounslow said:

 

  
Only if you ignore the “opportunity cost” of not investing elsewhere. That £2000 invested in an index tracker wrapped in an ISA would be worth a lot more now. Especially with dividends reinvested…

 


Indeed. 
 

The OBC is nice to have but not an overly generous perk. You could get a similar financial benefit paying for your cruise with a cashback credit card without risking a significant chunk of capital. 

I think the return I have been getting on my £1860 investment has been way higher than anything I could have achieved elsewhere, of course if Carnival does fail, then the capital loss will reduce that benefit, but we will have had dozens of enjoyable cruises.

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11 hours ago, wowzz said:

Taken from the Princess forum :

Bloomberg issued a warning about the rising cost of debt and questioned Carnival's ability to meet its interest payments -- a note that sent the stock falling.  

 

Also, Morgan Stanley on Wednesday issued its own warning about Carnival's debt load.

Unsurprisingly, Carnival stock fell in response.  Morgan Stanley cited weak sales, growing economic risks, and the rising cost of interest on debt as the three biggest risks to Carnival.

 

The Morgan Stanley further warned that investors can expect Carnival will require more cash to tide it over until conditions improve in the cruise industry.  Increase in bookings for the next 2 quarters would help ease the pain.  MS stated if things don’t improve expect Carnival to raise cash by issuing more stock.  Last quarter, Carnival reported operating losses of over $1.0 billion and negative free cash flow of $1.0 billion. As such, Carnival wasn't generating any of the cash needed to pay its $368 million in interest costs and had to go further into debt. 

Macrotends.com reported on Carnival the following --

Quarter ending February 28, 2022 was $29.887B, a 12.69% increase year-over-year.

Carnival long term debt for 2021 was $28.509B, a 28.83% increase from 2020.

Carnival long term debt for 2020 was $22.13B, a 128.73% increase from 2019.

Carnival long term debt for 2019 was $9.675B, a 22.51% increase from 2018.

 

 

Meanwhile another analyst said:

The good news, though, is that Carnival's operating losses are projected to decline to just $816 million in the current quarter, after which it's forecast to deliver nearly $1 billion in operating profits in Q3.

This means that Carnival really only has to survive one more quarter before it begins generating sufficient profits to service its debt again. Even if Q2 is as bad as the analysts forecast, the $6.9 billion it has in cash remaining (according to data from S&P Global Market Intelligence) should suffice to bridge the gap. 

 

Long story short, it looks to me like Carnival should be able to survive without needing to issue new shares. And if that's the case, then Morgan Stanley's warning about the risk of further stock dilution appears overblown.

 

Its worth pointing out that Carnival have been advising that the above is the likely scenario for the last nine months. This isn't new news. What perhaps is new is that the recent debt borrowed was at a higher interest rate than expected.

 

Lets look in detail at Carnival's debt:

image.thumb.png.50b3ee95b21a372c482de375c18412fc.png

As you can see, a variety of different borrowing rates which is usual for a large multinational corporate. 10.5% is not an interest rate that is unusual for Carnival to negotiate.

 

Once the company starts reporting profits and positive cash flow again, the rates that will be available to borrow at, will likely fall. At this point expect Carnival to refinance the more expensive borrowing.

 

Additionally, debt is only part of the story:

image.thumb.png.3f79cd7bc7876a5afeb69e2b8f2645e0.png

As you can see, £28Bn of Long Term debt but $38Bn of property (ships/buildings etc). If you were considering this in person scenarios, you might compare to a mortgage on a property at a 75% LTV (an oversimplification I know but my general point remains).

 

Also importantly, the line of Retained Earnings. There is still $6.448Bn of historic profits which have never been paid out to shareholders and retained within the business. This has decreased by $9.5Bn - last year's loss. From a cashflow perspective this has been countered by an additional $1.4bn of capital, $6.4Bn of long term borrowings and $1.7bn of short term liabilities. 

 

The shares are not a great short term acquisition by any means. But longer term, the company is not too badly faired.

 

One final point, cruise sales are weak compared to 2019 historic figures. If you compare to available capacity, sales are not too bad at all.

 

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4 minutes ago, molecrochip said:

 

Meanwhile another analyst said:

The good news, though, is that Carnival's operating losses are projected to decline to just $816 million in the current quarter, after which it's forecast to deliver nearly $1 billion in operating profits in Q3.

This means that Carnival really only has to survive one more quarter before it begins generating sufficient profits to service its debt again. Even if Q2 is as bad as the analysts forecast, the $6.9 billion it has in cash remaining (according to data from S&P Global Market Intelligence) should suffice to bridge the gap. 

 

Long story short, it looks to me like Carnival should be able to survive without needing to issue new shares. And if that's the case, then Morgan Stanley's warning about the risk of further stock dilution appears overblown.

 

Its worth pointing out that Carnival have been advising that the above is the likely scenario for the last nine months. This isn't new news. What perhaps is new is that the recent debt borrowed was at a higher interest rate than expected.

 

Lets look in detail at Carnival's debt:

image.thumb.png.50b3ee95b21a372c482de375c18412fc.png

As you can see, a variety of different borrowing rates which is usual for a large multinational corporate. 10.5% is not an interest rate that is unusual for Carnival to negotiate.

 

Once the company starts reporting profits and positive cash flow again, the rates that will be available to borrow at, will likely fall. At this point expect Carnival to refinance the more expensive borrowing.

 

Additionally, debt is only part of the story:

image.thumb.png.3f79cd7bc7876a5afeb69e2b8f2645e0.png

As you can see, £28Bn of Long Term debt but $38Bn of property (ships/buildings etc). If you were considering this in person scenarios, you might compare to a mortgage on a property at a 75% LTV (an oversimplification I know but my general point remains).

 

Also importantly, the line of Retained Earnings. There is still $6.448Bn of historic profits which have never been paid out to shareholders and retained within the business. This has decreased by $9.5Bn - last year's loss. From a cashflow perspective this has been countered by an additional $1.4bn of capital, $6.4Bn of long term borrowings and $1.7bn of short term liabilities. 

 

The shares are not a great short term acquisition by any means. But longer term, the company is not too badly faired.

 

One final point, cruise sales are weak compared to 2019 historic figures. If you compare to available capacity, sales are not too bad at all.

 

Thank you for your detailed analysis.

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1 hour ago, david63 said:

Can't see them going back to that in my lifetime - best I would be looking for is around the £20 - £25 mark in the next couple of years

Perhaps by 2030, but certainly not in the next couple of years.

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I don’t quite get the analogy of comparing Carnivals debt to a mortgage on a house. A house is an appreciating asset. Anyone who has bought property over the least 30 years has made a huge financial gain in percentage terms. The biggest asset for Carnival would presumably be the ships but, like cars, they are depreciating assets, with their values decreasing every year. 
 

The interest rates that Carnival are offered seem eye watering compared to current interest rates, but I guess when you are lending to an organisation that is in a much riskier position than the average business you have to take the risk into consideration when setting the rate. 

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The background information provided by @molecrochip was indeed useful. I also have shares but bought fairly low (but above what they are now) and based on the old adage "buy only what you you can afford to lose". However, I also agree with @Selbourne regarding assets in that surely they are only worth what others are prepared to pay and there does not seem to be buyers for 2nd hand cruise ships at present though at least the scrapping of them seems to have more or less stopped. I am guessing their value on the balance sheet is far higher than scrap value.

 

 

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I bought 100 shares a couple of weeks ago at £8.54 per share plus costs and tax. Have three 14 day cruises booked for the next15 months providing things stay as they are I should get £450 obc. Yes I realised there was a risk, but one I could afford to lose the costs. 

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@Selbourne I know that my example is a vast over simplification however when considering the liquidity of a business, its assets less liabilities as you know. My point was that whilst there is media focus on the liabilities, there are vast assets which need to be factored into the equation when considering the full picture.

 

An individual won't be declared bankrupt just for having an outstanding mortgage as long as the value of their assets is sufficient. With a lot of the older ships now gone, the assets represent good valuable young assets.

 

Large corporates never really manage to borrow at the 3% personal loans are given to individuals. 5% - 10% in the same market have been usual for the longer term debt.

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