In a note on Wednesday, the bank also retained its target price at 800p, saying they believed the company “will struggle to generate cash given the debt it has accrued and the need for sustained investment” in its cruise ship fleet.
“Carnival claims that “the business has tremendous cash flow generation”. While this may be the case in operational cash flow once [capital expenditure] and a much higher interest cost are factored into the equation, we remain of the view that it will be anaemic”, the broker said.
Berenberg added that while they applauded the company’s decision to adjust its fleet, removing 13 ships over the coming months, this meant capacity will not return to 2020 levels until 2022 as the new ships were launched, the scheduled for which is around five months behind schedule.
“Given the material uncertainty, the anaemic cash flow and the significant leverage, we find the valuation is unattractive”, the broker said, however, they justified their upgrade by highlighting a “material mismatch” with the company’s share price on the New York Stock Exchange, which it has rated at ‘sell’.
Carnival’s shares fell 0.9% to 881.2p in late-morning trading.
Published at Wed, 29 Jul 2020 10:38:00 +0000-Carnival upped to ‘hold’ but Berenberg questions cash generation ability