Low bankruptcy risk seen for key cruise lines: Nomura

Royal Caribbean, Carnival Corp. and Norwegian Cruise Line Holdings all have a low risk of bankruptcy despite the crisis prompted by the Covid-19 pandemic, analysts at Nomura wrote in a note.

The cruise lines, all of which operate on board casinos, have enough liquidity and or borrowing capacity to last them through near-zero revenue through to Q1 next year, the analysts said. 

There is likely to be a modest recovery in the second half, with revenue down 80 percent in Q3 and 70 percent in Q4, with a 50 percent drop seen for Q1, 2021. 

“In our view, while a peak in new domestic COVID cases/deaths reverses investors’ bunker mentality, the key reversals for cash from operations is accelerating new bookings and the cash that comes with it. 1Q21E could be the turning point,” Nomura said.

“There may be 70 percent-90 percent upside in the shares over a three year horizon, which is why we continue to recommend operators with the strongest brands: RCL and NCLH.”

While the coronavirus has hit all elements of tourism hard, for the cruise ship industry it has also proved to be a public relations disaster, with ships hosting infected passengers struggling to find ports willing to let them dock. 

Chief amongst them was the Diamond Princess, which was placed in mandatory quarantine in Yokohama after experiencing the worst outbreak outside of Mainland China at the onset of the outbreak.