Carnival: Ready for recession
Posted on April 6, 2009 by Richard Beddard
Filed Under Ramblings |
In practice:
Ripe for a lame pun and, perhaps, long-term investment
One of the laziest, most cringe-worthy indulgences a financial writer can lapse into is the lame pun about a company’s business. This is why Gold funds glisten, and cruise lines, well, I’ll avoid the temptation…
Carnival (CCL), which calls itself “the world’s most profitable vacation company,” is a rarity, a FTSE 100 company that meets the basic criteria for a Thrifty 30 portfolio.
The US cruise company, which owns Cunard and P&O, is cheap because its price earnings ratio is about nine, and the company owns more than twice what it owes. In February, total assets, mostly ships, were $32,800m and total liabilities were $13,900.
It’s average price earnings ratio since 2000 (nine years) is 14 though, so, taking the long-term view, it’s not an outright bargain.
My first reaction to Carnival’s recent annual report, and subsequent quarterly report, is the same as for any big company. The sheer size and complexity of it is repugnant, and induces an overwhelming sense of inadequacy: that I’m most unlikely to discover, and therefore say, anything original about it.
Although Carnival appears financially sound, it can finance some of its operations from the fares passengers pay in advance and it has about $9,000m in debt, last year it suspended its dividend saving $1,300m a year. It will use the money to fund new ships, because the cost of raising new loans during the credit crisis is too high.
Nevertheless, a quick check of Carnival’s financial statements confirms strong cash flows and the annual report, an unadorned 10-K filing required by the Security and Exchange Commission, tells of freezes on hiring and non-essential travel.
It gives credence to Carnival’s claim that it is ready for recession while still financing new capacity, albeit at the expense of income investors.
With contracts signed for 17 new ships at a cost of $9,100m spread over the next four years, it could be a good long-term bet for investors, if Carnival can cruise through the recession.
Oops…
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I’ve picked tiny Holders Technology (HDT) for this month’s Share Sleuth article. The main risks: liquidity, and the depth of the recession.
In theory:
Conflicting views on the market, in order of increasing pessimism:
In the US, sales of vitamins are surging.
Robert Peston thinks the reverse thrusters are beginning to tell and the plane might yet stop before it hits the runway. In other words, asset prices may be stabilising.
A former director of the IMF, Simon Johnston, describes the moment Peter Mandelson revealed a brief glimpse of our economic future by not only refusing to rule out borrowing from the IMF, but intimating it might not be a bad thing.
Despite the rumours, Nouriel Roubini, an economist who foresaw in some detail the current financial crisis, confirms he is not fully invested in equities.
Marc Faber says, when a bubble in everything is deflating, there’s nothing left to inflate, except, perhaps interest rates.
Ponzi watch – how they did it: Allen Stanford and Mark Dreier.
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