Carnival sees calm seas ahead

Cruise ship operator Carnival cruised to a steady set of full-year figures, which were slightly ahead of the market's expectations and underpinned a confident outlook for 2011. Chairman and chief executive Micky Arison was upbeat, pointing to a near 3 per cent increase in net revenue yields to $174 (£111) per available lower berth day - the key unit of accommodation - and a 3 per cent reduction in costs, excluding fuel. While net cruise costs are expected to remain stable this year, fuel costs are expected to rise from $480 to $500 per tonne, an additional cost of $134m.

The highlight of the fourth quarter was the launch of the Cunard Line's iconic new 2,000-berth passenger ship, the Queen Elizabeth. In all, Carnival launched six new ships in 2010 and retired one, increasing capacity by 4.9 per cent to 66.5m available lower berth days. Mr Arison said the $3.6bn of capital expenditure in 2010 marked a peak, but the group took advantage of attractive shipyard prices to order three more vessels over the year, taking the order book to 10 to be delivered through to 2014. New capacity will be focused on fast-growing regions in Europe, Asia and Australia, although booking trends in its key North American brands continued to improve.

Charles Stanley says...

Accumulate. Creditable full-year results reflected recovery in ticket yields, improved operational efficiency and increased capacity, partially offset by higher fuel prices, and we expect the operating environment to improve further in 2011. Demand for cruises remains strong, and there is evidence of improving consumer confidence in most markets. Cumulative advance bookings for 2011 are at higher prices than the prior year with slightly lower occupancies, and management are confident that January bookings for summer cruises will be strong. The shares are trading at a premium to closest peer Royal Caribbean, but we believe that's justified by superior scale and operational efficiency.

Numis Securities says...

Buy. A confident and positive outlook statement supports our thesis that yields will be driven higher as Carnival enters a period of relatively modest capacity growth and the economic recovery gathers pace. Carnival says net revenue yield will rise 3-4 per cent this year against stable costs. Expansionary capital expenditure has now peaked and the young fleet needs little for maintenance, which along with a recovery in profits points to rising free cash flow. The board will make a decision on the dividend in January, but we expect a restoration of the $1.60 last paid in 2008, implying a 3.7 per cent yield. We expect upgrade momentum to drive the shares higher.