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Carnival able to steer clear of credit storm; SHIPPING.

Shares in Carnival ticked up yesterday, reversing Thursday losses as investors digested the cruise operator's second-quarter results, which beat expectations despite a cut in full-year guidance.

The company reported second-quarter net income of EUR390 million, beating analysts' estimates.

Landsbanki said Carnival's guidance downgrade was driven almost entirely by the well-publicised recent spike in fuel costs.

The broker said that with the group's fuel guidance up 22 per cent since the fourth-quarter results, and net yields down from the initial guidance of three to four per cent, it was a remarkable achievement by Carnival that their EPS guidance was not lower. This has been achieved by tight cost control, the broker added.

Landsbanki said the Carnival share price was discounting a fall-off in net yields from the weakening economy that so far had not materialised, but added that it was still too early to have sufficient confidence that yields would not be more materially impacted.

The broker said it doubted this visibility would arrive before the fourth-quarter results in December, but accepted that the second-quarter figures were reassuring on the fundamental question of resilience.

It said this was the key risk, not fuel, because of the huge operational gearing in the business, and left its estimates and 'reduce' recommendation unchanged

Meanwhile, Morgan Stanley said that following the results it had cut its EPS forecasts by another seven to eight per cent and its price target to 2,300 pence.

The broker added that flat EPS growth was not bad for a fuel-reliant business, which was testament to Carnival's high margins.

It also noted that, for the first time, the group admitted to some signs of ticket-price weakness, but the broker said it was encouraged that forward booked volumes were in line with a year ago on higher prices.

Morgan Stanley repeated its 'overweight' stance.

SG Securities also said it had lowered its full-year 2008 and 2009 EPS estimates by five per cent and eight per cent respectively, mainly to reflect ever higher fuel prices. And these changes have prompted the broker to cut its price target to 1,500 pence.

But the broker said Carnival's second-quarter results were well above expectations, highlighting higher-than-expected net yield growth which compensated for higher fuel costs.

SG Securities repeated its 'sell' advice.


The Queen Victoria passenger liner which is owned by the Cunard Line, part of the Carnival company
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jun 21, 2008
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