Royal Caribbean this week launched the world’s largest cruise ship
“Icon of the Seas” is five times larger than the Titanic and comes with a water theme park, seven swimming pools, fifteen bars and twenty decks plus one crew member for every two of the 5,610 passengers.
Impressive, but through a strictly financial lens Shorecap argues that the new ship, which launches in 2024, highlights the growing competition in the sector and that spells bad news for London and New York-listed Carnival, Royal Caribbean's main rival.
Carnival recently upped its guidance for 2023 and set out plans for profits to return to historical levels after the problems of the pandemic.
Based on this updated guidance, ShoreCap estimates underlying profits ( EBITDA) can build towards US$7bn and EPS 165p by 2026.
Most of this though is already reflected in the current valuation believes the broker, while "broader industry capacity growth (ie Icon and others) may limit yield progression, the global economic backdrop remains uncertain, and the debt metrics are unlikely to improve in the immediate future".
“We continue to see better value across other potential deleveraging stocks (think UK pubs), capital-intensive rollout opportunities (Whitbread) and long-term structural growth opportunities (SSP).
'Sell' is the broker's stance on Carnival.