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Genting move on Crystal not a conflict, 'healthier' for luxury sector, UBS says

Genting move on Crystal not a conflict, 'healthier' for luxury sector, UBS says

In Genting Hong Kong's plan to acquire Crystal Cruises, some investors may question if there is a conflict of interest with one of Norwegian Cruise Line Holdings' largest owners buying a competitor to NCLH's Regent Seven Seas Cruises.

UBS Investment Research doesn't see it that way and, in a note, expressed the potential positives for the luxury sector industry-wide.

'We believe Crystal was known to be for sale and others in the industry may have had the opportunity to consider a purchase of the brand,' UBS analyst Robin Farley said. 'We believe it'll also make for a healthier competitive environment to now have three of the four luxury brands owned by public companies that view such assets as a business that needs to make money rather than a trophy property.'

Farley said that is also marginally positive for Carnival Corp. & plc, whose Seabourn brand is one the four luxury players.

UBS put Crystal's EBITDA per berth in 2013 at a loss of $160,000 per berth, while for NCLH's Prestige Cruises, which includes upper premium brand Oceania Cruises as well as Regent, EBITDA was $386,000 per berth in the year ending September 2013. Crystal grew EBITDA per berth to $198,000 in 2014, while Prestige did not report full-year 2014 figures.

Genting HK's plans for Crystal are unclear apart from its stated intention to order a newbuild.

If Genting were to 'target the luxury brand to the Chinese market, for example, that could eventually help pave the way for other luxury brands in the Chinese market, also a potential positive for NCLH's Regent brand and CCL's Seabourn brand,' Farley said.

Genting HK remains NCLH's largest shareholder, with about a 25% stake, and last year signaled in might exit by getting shareholder approval, valid until May 2015, to sell its holding. But during last week's NCLH investor conference, management indicated Genting may renew the approval for another year.

As UBS noted today, NCLH authorized $500m in share repurchases last year but the brokerage thinks balance sheet constraints make that unlikely before the second half of this year, so perhaps a selling shareholder would want to wait until later in 2015 if NCLH could then buy a block, Farley said.

'We view this as a positive for the stock that any block share sale may be pushed further out,' she added.

 

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