Broker snap: Investec lifts Carnival target by a fifth

25th Jun 2012 09:52

Investec has labelled cruise operator Carnival as a 'key sector pick', saying that the recent dip in the share price should be used as a buying opportunity.The group reported its second-quarter results on Friday which showed better-than-expected net revenue yields (-1.4% compared to earlier guidance of negative 2.5-3.5% growth) on the back of a strong rebound in booking volumes post the wave period that was affected by the Concordia incident. Combined with lower fuel prices and higher on-board spend, Carnival reported earnings per share (EPS) of 20 US cents, compared with Investec's own forecast of just six cents.However, analyst James Hollins highlights that the lack of a North American-led yield improvement is a "disappointment".Excluding Costa, the company forecasts full-year 2012 net revenue yields, on a constant dollar basis, will be down slightly on last year. Including Costa, the company expects a decline in net revenue yields of 3-4%.With Investec's new yield forecast of -3.5% and Carnival's full-year fuel price estimate at $677 per metric ton (down from $766/mt previously), the broker predicts full-year EPS of $1.92, above earlier expectations of $1.66 and group guidance of $1.80-1.90. Next year's EPS estimate is lifted from $2.26 to $2.74.As such, the target price is lifted from 2,500p to 3,000p."We advise utilising Friday's drop to invest in our sector key pick, with the group having: (1) an exceptional market position; (2) leading brands; (3) a resilient core customer demographic; (4) high repeat bookings; (5) emerging markets growth upside; and (6) benign industry supply growth with visibility of over four years," Hollins said.BC