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Concerns over future yield growth have overshadowed decent trading
Thursday 29 Mar 2018 Author: Lisa-Marie Janes

Carnival (CCL) £46.00

Loss to date: -8.6%

Original entry price: Buy at £50.33, 19 October 2017

We are confident in cruise operator Carnival’s (CCL) outlook despite concerns over yields amid rising capacity.

Carnival has underperformed since entering our Great Idea portfolio in October 2017 with its shares down 8.6%. However, first quarter results were very encouraging so we remain bullish.

Net revenue yields increased 3.9% in the three months to 28 February 2018, beating guidance of between 1.5% and 2.5% thanks to higher ticket sales and on-board spend. Approximately 2.5% net revenue yield growth is expected in the second quarter.

Carnival also upgraded adjusted earnings per share (EPS) expectations from a range of $4 to $4.30 to a new range of $4.20 to $4.40.

Shore Capital’s Greg Johnson estimates a 1% move in revenue yields is worth approximately 20c to EPS. Based on known capacity growth and 2% annual revenue yield growth, EPS is expected to jump by more than 50% by 2022.

UBS analyst Robin Farley says Carnival has outperformed over the last three years despite hurricanes, terrorist incidents and the Zika virus.

He overlooks weaker occupancy and prices in Eastern Caribbean and San Juan from hurricane disruption, flagging that Carnival can enjoy growing yields even if prices remain low.

Farley says the rest of the Caribbean is strong and is optimistic about progress in China following higher than expected yields despite 20% more supply in the country.


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