First I see that Carnival (CCL) shares are recently up a bit to c£16. Despite an initial badly timed investment of the shares at just below £30 over a year ago when only China was impacted by the Covid-19 challenges, a further sales update has brought me closer to breaking even. It struck me during the dog days of last year that there was some potential to see a substantial share price improvement. After all if you get vaccinated - as a growing proportion of older and/or richer travellers in the world are - then your scope to get back onto a cruise ship in 2021-2 has gone up substantially.
Of course, there are lots of continuing risks for Carnival including a balance sheet and new ship purchasing plan which have risks. I see the company just announced that ‘P&O Cruises Australia is extending its pause in guest operations until the end of July this year as it remains positive about a pathway for the cruise industry's return to service’. So a few extra issues there but frankly the shares are up because of the rapid vaccine expansion angle. Certainly a risky share but the vaccine expansion angle is positive for a cruise ship leader such as Carnival. Scope for a £20+ share price over the next year? That is not impossible, so I continue to hold onto my shares hoping for an overall profit.
Moving on...a couple of months ago I wrote up some thoughts on tobacco giant Imperial Brands (IMB) HERE following its 90 page-long capital markets event presentation. Back then I concluded the stock at a share price below £15 and offering a 9% dividend yield was a buy. So how do I feel now?
Well a pre-close trading update (half year numbers are out on the 18th May) was full of sensible updates, noting a ‘good start to the year’. Saying that, first half net revenue growth will only be a little over 1% but - as noted in the recent capital markets event presentation - the tobacco space is a changing business. It was certainly positive to note that the company’s NGP (Next Generation Production) business with its e-cigarettes and heated tobacco products is now close to being profitable, as certainly cigarettes per se are falling progressively out of favour. Adjusted operating profit is estimated to come in at £1.46 billion, which is very consistent with the near £3 billion annualised level discussed back in January. This targeted the stock at just below a 10 times EV:ebit multiple which, when you combine it with the aforementioned likely current dividend yield, is an attractive proposition.
In short the story here remains attractive. I have never smoked myself but if adults around the world want to do this, then that is fine. And no surprise too to see all the remaining major tobacco sector names also getting involved with cannabis. Again that is not an area of any interest to me personally but this is another reason why the biggest tobacco names will continue into the 2030s. From a total return perspective, buying some Imperial Brands shares below £15 still makes sense. Buy.
Filed under: Carnival, Imperial Brands, [email protected] Capital, Verditek, BSF Enterprise, Thruvision, Next plc
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