Carnival drops on Berenberg downgrade

Carnival fell on Monday as Berenberg downgraded the stock to ‘hold’ from ‘buy’ and cut the price target to 4,000p from 4,200p.

The bank said it remains positive about the outlook for the cruise industry going into next year, but recent trends in the cost of fuel, a further strengthening of the dollar and an increase in interest rates create headwinds that will be tough for Carnival to offset.

Berenberg expects yield growth for Carnival to remain strong on a constant currency basis, improving by around 3% on 2016.

However, further appreciation of the greenback since the company announced its third-quarter results means the drag on yields has risen, with reported yields likely to be under 1%.

In addition, the bank pointed to the fact that Carnival had flagged higher fuel costs would be a $0.24 drag on earnings next year, or around $175m.

“With fuel costs guided to be $926m in 2016, this implied c$1.1bn at the time. We believe that this cost has risen by a further $150m, with bunker fuel up by around c20% since the third quarter results.”

At 0910 GMT, the shares were down 2.2% to 3,980p.