Alexander Darwall, manager of European Opportunities Trust (JEO), explains why he continues to invest in cruise ship operator Carnival (CCL).
Carnival’s share price declined between May and November last year, which was detrimental to European Opportunities Trust’s half-year results over that period. However, the trust’s manager, Alexander Darwall, believes that this UK-listed company is still worth investing in even though there are concerns that travel companies will be negatively impacted by the outbreak of the coronavirus – at least in the short term.
“Carnival is the biggest cruise company in the world,” says Mr Darwall. “While recent results have been satisfactory, the company has warned about slower earnings growth. Though it is true that there are a lot more cruise ships being built, this is not in itself an explanation for the deteriorating outlook. Rather, it is a problem particular to Carnival that it has not been sufficiently successful in stimulating fresh demand. We believe that this is a temporary setback and it does not diminish our confidence in the industry.
"Although we acknowledge the potential for longer-term implications from the coronavirus epidemic, the cruise business should continue to grow. The business characteristics are attractive, not least the very high barriers to entry. [So] we have retained our holding in Carnival.”
Carnival was the trust’s 13th largest holding, accounting for 4.4 per cent of its assets at the end of November. The trust, which was called Jupiter European Opportunities Trust until November last year, had 11.3 per cent of its assets in consumer discretionary companies at the end of January.
Investors Chronicle rates Carnival as a ‘Hold’. In our last update on the company in June 2019, well before the outbreak of the coronavirus, we said: “Constrained consumer spending in Europe has hit performance, and economic indicators for the continent are not favourable. The bearish outlook for the rest of the year has weighed on Carnival’s shares, which have lost nearly a fifth of their value over the past 12 months. The shares might look cheap compared with their historical valuation at 9.4 times Bloomberg consensus earnings, but a catalyst for improved performance in Europe isn’t apparent.”
