Carnival Corp: Valuation could be way ahead of itself given massive debt additions and dilution over the past year

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June 24, Carnival Corporation (NYSE: CCL), the world’s largest cruise line operator, reported an adjusted loss of about US $ 2 billion for the second quarter of fiscal 2021 (quarter ended May 31, 2021). Investors have reacted little to the large loss, a reaction that has become customary for popular economy reopening games, as investors instead focus on the almost certain return of the company in the second half of 2021 from depressed levels. from 2S 2020.

The effects of a dramatic increase in debt and dilution are, for now, ruled out.

To decide whether Carnival investors should have little concern about the company’s valuation and recent losses, it is instructive to look at Carnival’s post-pandemic enterprise value (EV) relative to its pre-pandemic financial position. pandemic. Carnival, like many discretionary spending companies, had to issue significant amounts of debt and equity to stay afloat as consumer entertainment spending fell to negligible levels last year.

As of November 30, 2019, the end of Carnival’s last fiscal year before COVID-19, Carnival’s electric vehicle was approximately US $ 43.3 million, and the company’s revenue and operating cash flow was valued at approximately US $ 43.3 million. company were US $ 20.8 billion and US $ 5.5 billion respectively in fiscal 2019. As a result, at the end of November 2019, Carnival stock was trading at the following valuation ratios: EV / Revenue and EV / Operating cash flow of approximately 2.1 and 7.9, respectively.

As of May 31, 2021, Carnival’s outstanding share was approximately $ 1.2 billion, about 70% more than 18 months ago. Even more troubling, its debt nearly tripled to US $ 32 billion from 18 months earlier. Taking this into account, along with the current Cardinal share price of US $ 26.34, the company’s EV is now around $ 54.3 billion.

Cardinal is therefore now trading at around 20% more EV / Revenue and EV / Operating Cash Flow ratios, based on fiscal 2019 pre-pandemic sales and cash flows, compared to 18 months ago, when demand for cruises was robust and there was no fear of contracting a deadly virus on board ships. Additionally, it is uncertain whether – and certainly when – Carnival’s revenue and cash flow will ever reach their levels for fiscal 2019.

30-Nov-19 31-May-21
Carnival course $ 47.00 $ 26.35
Outstanding Shares (US $ Millions) 688 1 190
Market value (in billions of US dollars) $ 32.3 $ 31.4
Debt (in billions of US dollars) $ 11.5 $ 32.2
Cash (in billions of US dollars) $ 0.5 $ 9.3
Company value (in billions of US dollars) $ 43.3 $ 54.3
Revenue for fiscal year 2019 (in billions of US dollars) $ 20.8
Fiscal 2019 operating cash flow (in billions of US dollars) $ 5.5
VE / Turnover 2.1 2.6
EV / Cash flow 7.9 9.9
NOTE: EV / REVENUE AND EV / CASH FLOW RATIOS ARE CALCULATED FOR BOTH PERIODS BASED ON FISCAL 2019 RESULTS.

Debt and stock stocks have grown rapidly over the past twelve months

While Carnival’s revenue has all but disappeared due to the pandemic – and due to the strict treatment by many governments of cruise ships for health and safety reasons – the company’s debt has increased by around $ 10 billion. US dollars between May 31, 2020 and May 31, 2021. Likewise, Carnival’s average shares outstanding increased from approximately 721 million in the quarter ended May 31, 2020 to 1.132 billion in the May quarter 2021. Carnival’s operating cash deficit has averaged about US $ 1.5 billion per quarter over the last three published quarters.

(in millions of US $, excluding outstanding shares) 2T FY21 1T FY21 4T FY20 3T FY20 2T FY20
Returned $ 50 $ 26 $ 34 $ 31 $ 740
Operating result ($ 1,616) ($ 1,523) ($ 1,642) ($ 2,333) ($ 4,177)
Oper. Cash flow ($ 1,359) ($ 1,503) ($ 1,652) ($ 2,845) ($ 2,720)
Cash / Investments – End of period $ 9,271 $ 11,514 $ 9,513 $ 8,176 $ 6,881
Debt – End of period $ 32,234 $ 32,729 28,380 $ 26,342 $ 22,250
Average share. (Millions) 1,132 1,095 920 775 721
Fiscal year 2021 ends on November 30, 2021.

It is possible that over time, the number of Carnival cruise passengers will be significantly higher than in fiscal 2019. This could occur if the financial markets remain buoyant, as the wealth effect is one of the factors. main drivers of cruise line activity. The likely increases in vaccination rates around the world should also be a positive factor.

Investors appear to have ignored the negative factors of increased debt and dilution of stocks in their assessment of Carnival’s valuation. Activity is expected to resume in 2H 2021, but this appears to be more than fully discounted in the Carnival share price. It is not known if (and / or when) the company’s revenue and cash flow will ever reach pre-pandemic levels.

Carnival Corporation & plc last traded at US $ 26.06 on the NYSE.


Information for this briefing was found through Sedar and the companies mentioned. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.


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