UBS weighs operators’ exposure in a big Caribbean capacity-hike year
From Seatrade Insider
Although cruising’s 2014 capacity increase of 3% to 4% is below average, deployment changes are pushing up Caribbean market supply 12% to 13%, according to UBS Investment Research. The three major cruise operators are all adding Caribbean berths, and Royal Caribbean and Norwegian Cruise Line at a double-digit rate. Even privately owned MSC Cruises has a year-round Caribbean presence for the first time.
Analyzing the Caribbean exposure of the Big Three companies, taking into account various cruise lengths, source markets, quality of capacity and year-over-year change in deployment, UBS delivered a nuanced view in a research note. The brokerage recently upgraded the sector following signs of Carnival pricing issues bottoming, combined with Costa recovering, which UBS views as a positive for the sector overall heading into wave season.
In terms of cruise length and source market, CCL has the greatest Caribbean exposure, the brokerage said, with 10% of its total capacity in the short cruise segment, which has been under greater pressure than longer sailings. RCL has 5% of its capacity in the three-/four-day Caribbean market and NCLH, 6%.
More than 60% of Norwegian’s 2014 Caribbean capacity includes its three newest and largest ships, which garner price premiums. And one of those sources customers year-round from the New York area, distinct from the drive markets of South Florida, UBS noted.
Royal Caribbean has a larger percentage of total Caribbean exposure, 49%, versus Norwegian’s 48%. RCL sources about half its Caribbean cruises from competitive South Florida, but half of that is for the premium-priced Oasis and Allure.
Though Carnival is more at risk in the Caribbean, the company overall has the most European exposure, 30%, and Europe—UBS noted—is where operators are most optimistic for pricing recovery.
While CCL’s total Europe exposure is unchanged at 30%, the company is increasing Baltic and reducing Mediterranean capacity since demand for Northern Europe has been stronger. So the mix change is more favorable than the total would suggest, UBS analyst Robin Farley told investors.
RCL’s 22% exposure to Europe is just slightly more than NCLH’s 20% since Royal Caribbean shrunk capacity in the region by 17% year over year—the biggest decline of the three major companies.
UBS rates all three companies ‘buy.’
The price target of $41/£25 for CCL is based on 14 to 16 times UBS’s 2015 earnings per share estimate, ‘paying for ’15 today as we are seeing visible signs of recovery,’ the brokerage said.
RCL’s price target of $50 is also based on 14 to 16 times the 2015 EPS estimate, discounted to today, while NCLH’s $37 target is based on 14 to 16 times of UBS’s 2014 EPS estimate, with no discounting.
PHOTO: MEYER WERFT Heading to the Caribbean – Norwegian Getaway
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