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Carnival shares have risen by more than 40 per cent so far this year as consumers have flocked to the cruise line group’s ships in a resilient leisure and travel demand environment. But the shares remain well below their pre-pandemic level as a significant debt burden weighs on sentiment. 

The company’s third-quarter update revealed positive news on the demand front. Revenues reached a record $6.9bn (£5.7bn) in the three months to August 31 as booking volumes were up by about a fifth on the pre-pandemic rate. Customer deposits of $6.3bn also hit a record level in the quarter, up 29 per cent from the previous peak. Occupancy improved to 109 per cent, well above the 84 per cent recorded in the third quarter of 2022. 

Chief executive Josh Weinstein argued on an analysts’ call that “consumers are continuing to prioritise spending on experiences over material goods”. 

But the debt pile continues to cast a pall over the business. Carnival is very highly geared, with net debt (including lease liabilities) of $29.8bn at the end of third quarter. Higher interest rates and the financing of new ships means less cash can be put towards cutting debt. Principal repayments of long-term debt rose by $5.8bn in the nine months to August 31 against the same period last year. 

Management forecasts full-year adjusted cash profits of $4.1bn-$4.2bn, down slightly from its June guidance because of fuel and currency difficulties. 

Non-executive director Randall J Weisenburger certainly seems bullish on the company’s prospects, based on his market activity in October. He bought $1.2mn-worth of shares on October 19, which came just over a week after he picked up $4.5mn-worth of shares.

Carnival’s shares have moved full speed ahead for most of this year, but a 36 per cent drop over the past three months means that “more sensible valuation metrics are slowly coming into view”, according to Shore Capital analyst Greg Johnson. The shares trade at 12 times forward consensus earnings, according to FactSet, well below their five-year average of 38 times.

Departing SJP chief still a fan

The reality of having cut its customer fees, including the scrapping of exit charges for existing clients, has been enough to knock 42 per cent from the share price for wealth manager and financial services provider St James’s Place this year.

The implementation of Consumer Duty regulations has shaken up a business model that had been characterised by the relative inertia of its client base. Now that exit fees are scrapped, under pressure from regulators, it will be interesting to see if STJ clients retain their reputation for fanatical loyalty. 

Against that backdrop, the company’s current management felt the need to inject a boost of confidence into the share price. This was done via outgoing chief executive Andrew Croft, who is due to stand down in favour of Mark FitzPatrick in a month’s time. Croft purchased a little over 39,000 shares at an average price of 625p, meaning a total outlay of approximately £248,000, snaffling considerably more of the company’s heavily discounted shares than would otherwise have been the case this time last year. 

While management tries to hold the line on fees until the handover is complete, the company’s operational performance has also come under the spotlight. For example, SJP recently had to gate an open-ended commercial property fund after a combination of post-pandemic lack of occupancy, and a general lack of demand for office space, meant that withdrawals and redemptions had picked up.

The gating should mean that the assets can realise a better value without the need to quickly generate cash as the fund is wound down. To be fair, SJP is not the only large fund manager to exit from commercial property in a sign that the long boom for the segment is definitively over.