It’s perhaps far too early to speak of bottoms, but with the news full of stories of the recent Carnival cruise ship-wreck and subsequent 16% sinking in share prices, it may be worth doing a bit of work to see at what level buying in the face of panic may be warranted. <\/p>\n
First up, before deciding how much to discount CCL, we should have an understanding of whether it was appropriately valued to start with. At 14X P\/E for a discretionary vacation provider, it was perhaps a little rich going into the mess on an earnings basis, but pro-forma book value was $30\/share, giving it some support. But if we say $29 would have been a more fair starting place before the ship got grounded, then it’s clearly not bottomed yet — a 16% drop only takes it to that price.<\/p>\n
For the current circumstances, to be conservative we should assume no insurance coverage (due to the possibility that it was an at-fault accident) and that the ship will not be able to be repaired, representing a $500M loss. It’s tough to say what the liability will be for each of the passengers (~4000), but perhaps $50k each is a good upper bound, plus another $2k for the next group of ~4000 to compensate them for having to change their trip plans\/flights at the last minute, plus $1M for each death (6 confirmed with ~20 missing, call it $25M). $733M immediate hit to book value, or about $1\/share.<\/p>\n
On top of that, it’s fair to assume that people will be less likely to book cruises for the next few years, so revenue may decline by say 10% for the next 3 years. If costs are fixed (assume that they are, again to be conservative), that goes straight to a decline in earnings. So I’ll plug into my little model $1\/share in earnings for each of the next 3 years, returning to $2.40\/share afterwards. In fact, that appears to be a much, much larger potential hit to the value than the loss of the ship and liability from the accident, which is a shame since it’s a lot harder to estimate. Add in a healthy fudge factor, and I wouldn’t be interested until it hit something like $21-25 – a 1\/3 decline from Friday’s price. Until then I think I’ll just watch.<\/p>\n
My record is fairly spotty with this sort of thing: 1-1-1 to date (BP a clear win, the Canadian banks w\/ ABCP came out all-right, and TEPCO was a disaster).<\/p>\n","protected":false},"excerpt":{"rendered":"
It’s perhaps far too early to speak of bottoms, but with the news full of stories of the recent Carnival cruise ship-wreck and subsequent 16% sinking in share prices, it may be worth doing a bit of work to see at what level buying in the face of panic may be warranted. First up, before […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"_links":{"self":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1090"}],"collection":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1090"}],"version-history":[{"count":0,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1090\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1090"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1090"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1090"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}