Upside risks to our target price:
• Stronger-than-expected return to cruising which could drive faster growth in revenues and margins.
• Cheaper and/or more debt refinancing.
• Cruise price outperformance well above the industry average, especially if driven by unobservable prices charged by travel agents.
• Fuel prices fall significantly from the prevailing spot rate.
• Occupancy returns to levels return to historical levels of >100%.
Downside risks:
• Geopolitical risk/global conflict.
• A new wave of Covid (which could be resistant to current vaccines) which could cause a new spike in infections and reverse the recent positive sentiment.
• Further Covid travel restrictions, caused by rising infections or new variants, which may limit the range of available cruises and limit consumer appetite.
• Environmental pressures to further reduce emissions and calls for countries to go carbon neutral by 2050 and the potential costs and risk to earnings in doing so.
• Political risks, particularly around changes to cruise operators' current, very favorable tax arrangements.
• Elevated fuel prices may persist or even rise further as economic conditions improve, potentially reversing the benefit to earnings recover from the fall in oil prices last year.
• While we believe NCLH has sufficient cash to handle near-term cash burn requirements, given the multiple uncertainties inherent in these projections and heightened levels of leverage, it is possible that NCLH may seek to raise additional capital.
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