Berenberg ups Carnival target price to reflect 'euphoria'

Berenberg increased its price target for Carnival to reflect "euphoria" about recovery stocks but kept its 'sell' rating on the shares.

The broker said it "remained uncomfortable" with the balance of risks and rewards for the world's biggest cruise operator. The market is continuing to over-reward the sector's likely recovery in the next two years, Berenberg said.

Berenberg increased its price target for Carnival shares to £14 from £10 but the target was still well below the £16.35 value at the time its note was published.

Consumer demand is "shaping up nicely" and is reflected in good forward bookings but it is early days and there is no discernible improvement in customer deposits, Berenberg said. Customer confidence, which usually mirrors net yield trends, is some way below 2019, the broker added.

Carnival's future looked in doubt at the peak of the crisis after some of its ships acted as petri-dishes for Covid-19, raising fears that its older customers might never return. But vaccination programmes have bolstered confidence and on 7 April Carnival said first-quarter bookings were up on last year as pent-up demand was unleashed.

"While we think there is still good reason to be cautious about the timing and the pace of the resumption of service, we have amended our assumptions, now assuming a more rapid recovery both in terms of a return to full occupancy and a net yield recovery," Berenberg analyst Stuart Gordon said in his note. "This brings us into line with the current euphoria surrounding recovery plays. However, we would stress that, in our view, this is likely close to the blue-sky scenario."

Carnival shares have more than doubled since late October as investors have bet that the plunge in its price early in the pandemic was overdone. The company's shares rose 5% to £16.07 at 16:06 BST on a good day for other travel stocks such as IAG and easyJet.