'While the near-term outlook has gotten worse, with continued delays in restart, the longer-term outlook has improved as vaccines become more widespread than what we originally factored into our estimates last year,' UBS analyst Robin Farley said in a note.
As a result, the brokerage's 2021 and 2022 cruise estimates are lower, but its 2023 estimates are higher.
Late Q3 restart
'Furthermore, given that CCL includes some brands that source primarily from Italy, Germany and the UK, and those countries are likely to allow cruising to restart before the US, we are bumping up CCL estimates to include more relative recovery than previously,' Farley said. 'We believe that a US restart is now more likely in late Q3 from Q2 previously.'
UBS thinks only about 7% of capacity would be used in the first quarter of operations, growing over a year to 75% in second quarter 2022, to average 35% to 37% for the first full year with ships out of service and at reduced occupancies initially.
'Despite what is likely to be a challenging restart period, we believe demand will exceed supply, partly because supply will be so limited initially and also because there will be two to three years since the last cruise for many itineraries,' Farley added. ' ... As a result of the pent-up demand, leisure demand may also be less price elastic than what we’ve seen historically as cruising restarts.'
UBS Evidence Lab last week showed that for the first time since the pandemic, more people are ready to travel now than are waiting at least six months.
2023 earnings estimates go up
Citing pent-up demand and widespread vaccination, UBS forecasts better yield recovery — down only 2% to 4% from 2019 levels — compared to the brokerage's prior down 10% to 13% assumption.
Farley sees more relative improvement for Carnival since it has brands that source customers primarily from Italy, Germany and the UK, which are allowing cruising before the US. She figures 19% continental Europe exposure for Carnival compared to 5% to 7% for Royal Caribbean and NCLH.
UBS raised its 2023 earnings per share estimate for CCL to $2.87, from $1.55 previously, on a revised net yield assumption, now 3% lower compared to 2019, instead of 13% lower before, and revised margins for new ships and the Europe deployment/sourcing.
The CCL price target goes to $42 (£26 for Carnival plc), from $20 (£13 for Carnival plc) previously, based on a multiple of 15.5 of the new 2023 EPS estimate, at the upper end of the pre-COVID 10-year industry 14 to 16 multiple average.
RCL and NCLH price targets rise, too
The brokerage's target for RCL goes to $116, from $79 previously, based on a multiple of 15 to 16 times 2023 EPS, now $8.02, from $5.89.
And the UBS target for NCLH goes to $32, from $21 previously, also based on a multiple of 15 to 16 times 2023 EPS, now $2.46, up from $1.62.
UBS is discounting all three companies by eight to nine months at 10% annually.
CCL opened at $29.49, RCL at $91.63 and NCLH at $30.30 on Thursday. CCL rose in trading while RCL and NCLH were down.
Copyright © 2024. All rights reserved. Seatrade, a trading name of Informa Markets (UK) Limited.
Add Seatrade Cruise News to your Google News feed.  |
