After two years of disputes, 2021 annual results show $9.1 billion in cash on hand, but borrowed $33.2 billion and leased $1.3 billion to give net debt of 25.5 billions of dollars. Heavy losses have eaten away at shareholders’ funds and reduced them to $12.1 billion, leaving the debt ratio at 210%. And even if operating profit quickly returns to 2019’s $3.3 billion level, that would barely cover the $1.6 billion interest bill by a factor of two.
None of these 2021 numbers offer much comfort should something unexpected go wrong. This is a concern, since the first principle of investing is to protect your downside before you start thinking upside. And the upside potential can be capped by valuation.
Again, this may seem odd when stocks are down more than 60% since the summer of 2019. But an analysis of the stock’s enterprise value, which adjusts market capitalization for cash, debt, leases and repos to give the total cost of ownership paints a different picture.
In 2019, Carnival had 692 million shares outstanding and the stock price was $50.21 when results were released in December, for a market capitalization of $34.7 billion. Add to that the net debt of $11 billion and the company had an enterprise value of $45.7 billion. Now, after raising funds to help the company through the pandemic, Carnival has 1.13 billion shares outstanding and at $19.11 a share giving it a market capitalization of $21.5 billion.
That’s down $13.2 billion from two years ago. But with net debt hitting $25.5 billion, the company’s value is now $47 billion, so the valuation is higher than two years ago, even as the company’s finances falter. weakened and the outlook for the cruise industry has potentially changed.