Investment column: Stay aboard as Carnival charts rebound

Porvair; Dolphin Capital Investors

Nikhil Kumar
Wednesday 21 September 2011 00:00 BST

Our view: Hold

Share price: 2,145p (+132p)

Carnival revealed higher revenues for its third quarter yesterday, as the cruise operator's North American brands booked strong growth. That strength, which saw yields at those brands climb by almost six per cent, helped offset weakness elsewhere.

Chief executive Micky Arison said the company's "European, Australian and Asian brand yields fell two per cent [in constant dollar terms] due primarily to the geo-political unrest in the Middle East and Africa." Overall, revenue yields were up by 2.6 per cent, once again in constant dollar terms, and helped offset rising fuel costs.

These issues – the impact of the unrest in the Middle East and North Africa region and the pressure posed by high fuel costs – will be familiar to recent investors in Carnival. These risks made us cautious in late March, when we decided against buying in to the stock.

We did not sell, however, reasoning that those who had been caught up in the sell off since the start of the year would be better off holding in anticipation of the recovery.

But we could not see the case for buying more in the short term. Since then the stock has continued to lose ground, which is unsurprising given the turmoil in North Africa over the summer, and the trajectory of fuel prices, not to mention concerns about consumer sentiment. The recent market volatility is also likely to have to have hit the performance.

Yet, for all that, there is nothing wrong with the business, which issued what we viewed as a reassuring outlook statement. As we noted last time, the longer term prospects appear sound; it's the short term that makes us pause. Given this, we would wait before buying in.

That said, if you have been holding since the start of the year, we'd once again advise against hopping off now. After falling to levels under 1,750p apiece in August, Carnival has climbed back above 2,100p. This trend should persist as bargain hunters move in, so sit tight in order to mitigate losses.


Our view: Buy

Share price: 88.5p (+5.5p)

Recommeding Porvair, the filtration specialist, at the start of April when the shares were changing hands at 115.5p doesn't look all that clever now.

In our defence, this was before the current turmoil swept through the markets hitting the value of almost every stock you'd care to mention.

And the reasons for backing the company were sound: an update detailing soaring revenues, falling borrowings and a strong order book.

Those balmy looking fundamentals haven't changed all that much. Yesterday, Porvair released another update showing that revenues have continued to grow while debt continues to fall. What's more, the full year results should now be ahead of expectations.

Porvair's filtration and separation equipment is used by the aviation, energy and environmental technology sectors. It would not be immune from another global recession but has many defensive qualities. That includes the falling debt, which could give the company the firepower to pick up distressed rivals on the cheap. And though it trades at premium to the sector, this latest update should trigger forecast upgrades, which should support the stock.

Dolphin Capital Investors

Our view: Hold

Share price: 33.375p (unchanged)

A property developer investing in luxury hotel resorts and villas in Greece may seem about as unfashionable a stock as you could wish to invest in.

This is a key flank of the strategy of Dolphin Capital, an investor in residential sites. However, of its 14 large-scale leisure and residential resorts under development, Greece accounts for just half with Cyprus, Turkey, Panama and the Dominican Republic making up the rest.

Dolphin also has 60 smaller holiday home projects in Cyprus. Besides, Greece's financial woes will not concern the wealthy international investors that Dolphin targets ahead of the first Porto Heli resort opening in Greece on the Peloponnese peninsula next spring.

However, despite the fact that its shares trade at what is a significant discount to its net asset value, we would exercise caution for a number of reasons. First, sales at its Aristo Developers operation in Cyprus fell by 24 per cent over the half year. And second, the uncertain economic backdrop is likely to continue weighing on market sentiment in the short term.

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