P&O Princess set fair for the long haul

GW Pharma; ebookers.com
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The Independent Online

It has been rough sailing for P&O Princess Cruises since the terror attacks of 11 September. Instead of spending this month celebrating the luxury ship group's first birthday as an independent company, its chief executive, Peter Ratcliffe, has been hard pushed to persuade people to continue cruising.

Investors abandoned ship after the attacks, causing the stock to almost halve. Its customers did the same, leaving P&O Princess 40,000 passengers down in the two weeks after 11 September. Before bookings could stabilise, the US Government went to war and an unknown foe launched an anthrax scare campaign in the US. This hit Princess with a 70 per cent fall in North American bookings, which accounts for 75 per cent of profits.

Princess has had to work hard to get people on board again, cutting prices by 5 per cent and increasing marketing spend to resell its cancelled holidays. Although occupancy in the final quarter of the year is expected to top 95 per cent, bookings for the first quarter of 2002 are well down on the 60 per cent they would normally be at this stage. Crucially, Princess refused to give any guidance on demand for its ships in next year's key second and third quarters; obviously the outlook is highly uncertain.

That said, yesterday's third-quarter results went some way towards settling the stomachs of seasick investors. Princess took a $12m one-off charge relating to the terrorist attacks, which depressed pre-tax profits in the three months to 30 September, down to $171.5m from $175m. Turnover fell to $776m from $778.1m previously, while net revenue yield, the revenue per passenger, fell 5 per cent compared with 3 per cent previously. The market had feared worse.

Mr Ratcliffe hopes the company's swift decision to redeploy its cruise ships from the potentially fractious Middle East and Mediterranean to the safer waters of the US will buoy demand from North American holidaymakers who may not want to travel too far from home or fly to meet their cruise ship. Meanwhile, two US cruise firms – Renaissance and American Classic Voyages – have gone bust, removing nearly 6 per cent capacity from a well-supplied market.

Analysts see Princess as a growth stock, and it shouldn't lose the tag in a recession. It's pitched at the expanding ageing population, who have more disposable income, can't get laid off, and benefit from lower interest rates. HSBC Securities is forecasting full-year earnings per share of 38.7 cents on pre-tax profit of $281.2m. The shares, up 18.5p to 231p, trade on a price-earnings ratio of around 8 – historically cheap compared with its main rival Carnival. Buy for the long-term growth prospects.

GW Pharma

Afroman's Because I Got High is number one in the charts. David Blunkett, the Home Secretary, wants to change the law so possession of cannabis is no longer an arrestable offence. No wonder, then, that investors have got the munchies for shares in GW Pharmaceuticals, the little drug company developing painkillers from cannabis plants.

There was just a touch of opportunism about the company's announcement yesterday that it "welcomed" the Home Secretary's proposals to liberalise the cannabis laws. They don't really have anything to do with prospects for the company, and there was little to justify a 14 per cent jump in the share price, to 108p. Mr Blunkett did promise a change in the law to enable the prescription of effective cannabis-based medicines, but that has been Government policy since GW was allowed to start growing cannabis plants for medical research in 1998.

It is launching a series of Phase III clinical trials of an under-the-tongue spray which, earlier studies seem to suggest, relieves pain and spasms in multiple sclerosis sufferers. Hundreds of MS and cancer patients in the UK will be involved. To fund the projects, GW raised £25m in June but the shares haven't so far got higher than the 182p float price. That may change now that there are the first signs of new life in the bombed out biopharma sector.

It goes without saying that there are huge risks in investing in a company with zero revenues until at least 2003, and plenty of scientific hurdles to get over before then. Investors are also almost sure to see their stake diluted by the need to raise additional financing as products get closer to the regulatory approval process.

But GW has a close relationship with the UK Government and remains the only company producing medicine-grade cannabis. If bigger trials against placebos confirm that cannabis really is effective as a painkiller, then there should be no shortage of big pharmaceuticals firms wanting to license the product. On that basis, the stock is worth a flutter.


If it hadn't been for the collapse in air travel after 11 September, third quarter results from ebookers – the online travel agent – would have far outstripped the market's forecasts. In the event, they will now only slightly outstrip forecasts.

The shares deservedly rose 9p to 107.5p after the firm said losses before interest, tax, depreciation and amortisation, will reduce to just £0.5m for the three months to the end of September, compared with £5.7m in the previous quarter. Break even is closer than ever.

The company is growing at 20 per cent per quarter and squeezing out costs by automating things such as the issue of tickets. It is also sacking a fifth of its 700 staff to make up for the terrorism-related slowdown. Investors should back the impressive management.