This must have been a good year for the cruise industry. The forecasts indicated that in 2019 a figure of 30 million passengers would be reached worldwide, something never seen since there are records. However, no one saw coming a crisis of such magnitude that has brought the tourism industry in general, and cruise ships in particular, to its knees. Its three main players –Royal Caribbean, Carnival and Norwegian- hold around 75% of the market and so far this year they have lost 65%, 57% and 70% of their market value, respectively. | .
Perhaps the most serious case is that of Royal Caribbean, which suffered the isolation on its ships of several dozen passengers infected with Covid-19. The company has withdrawn the annual forecasts that it had prepared a few weeks ago and which are now out of date. Among the measures they have taken are the reduction of capital expenditures and operating expenses to improve liquidity to around 1.7 billion dollars in 2020. Likewise, they have increased the revolving credit capacity by 550 million dollars.
Royal, which is part of the Tressis Cartera Eco30 fund, reached a record high on the stock market on January 17 at $135.05. In less than two months it has fallen below $50 and the stock has plummeted 65% so far this year. At mid-session on Wednesday, it stood at $47.
The shipping company succumbed to market pressure in the last week of February, when the price of its shares plummeted 24.2% on the floor, and also the following week – the first of March – when they sank another 19%. .
Royal Caribbean’s shares thus return to 2014 levels, especially after the large investment banks cut the valuation of the American firm. Goldman Sachs went from valuing the company at a $130 price target to lowering it to $79. They gave another snip from Nomura, going from 115 to 66 dollars.
It was precisely the team of analysts from Goldman Sachs that gave the last straw this week with a detailed report on the sector, of which it says “it will probably take a while to recover from the coronavirus shock”. All this despite the fact that both Roya Caribbean and Carnival have suspended their cruises in the China Sea.
In the case of Carnival, the world’s largest cruise firm, Goldman Sachs forecasts a profit drop of between 50% and 60% in 2020, “with more than half of the impact coming from the slowdown in demand.”
From the North American bank they emphasize that cruise companies usually obtain their highest profitability in the third quarter of the year, which would be between summer and autumn. “That is when many ships are transferred from the Caribbean to Europe and Alaska,” they explain, although “this increases the possibility of interrupted trips in those regions.”
Despite the complications, Royal Caribbean receives a general buy recommendation from the market consensus collected by FactSet, although it is true that it has deteriorated since the end of January. This recommendation has remained intact for four years, since January 2016.
The coronavirus crisis has decimated the market capitalization of the main cruise lines. Royal Caribbean has a size that is currently around 9,000 million euros; Carnival, around 11,000 million, and Norwegian, just over 3,000 million. At the beginning of the year, both Royal and Carnival exceeded 20,000 million.
In this way, the recent falls have greatly cheapened the benefits of these companies. Royal Caribean presents an earnings multiplier that includes debt (ev/ebitda) of 6.9 times, compared to 5.8 times for Carnival and 5.6 for Norwegian (not to be confused with the airline). Still below what is paid for the benefits of Marriott or Intercontinental, which are at 13.1 and 11.7 times.
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