IPO Preview: Norwegian Cruise Line Holdings

Jan.17.13 | About: Norwegian Cruise (NCLH)

Based in Bermuda with executive offices in Miami, Norwegian Cruise Line Holdings (NASDAQ:NCLH) scheduled a $400 million IPO with a market capitalization of $3.4 billion at a price range mid-point of $17, for Friday January 18, 2013.

Four other IPOs are scheduled for the week of January 14, 2013. The full IPO calendar is available here.

S-1 filed January 8, 2013.

Manager, Joint Managers: UBS Investment Bank/Barclays/Citigroup/ Deutsche Bank Securities/Goldman, Sachs/JPMorgan.
Co Managers: DNB Markets/ HSBC/ SunTrust Robinson Humphrey/ Wells Fargo Securities/ Apollo Global Securities.

NCLH is a major cruise ship operator, competing with Royal Caribbean Cruises Ltd. (NYSE:RCL), $7.76 billion market cap and Carnival Corp (NYSE:CCL), $29 billion market cap.

Sector comparison
From the low prices this year, RCL is up 59% and CCL is up 22%, which shows institutional interest in the cruise line sector.

At the mid-point of the pricing range, NCLH prices at the same Price/Earnings ratio as RCL, and is priced at a premium in terms of price/sales, price-to-book value, and price-to-tangible book value.

In addition, both RCL and CCL pay dividends. NCLH has no plans to pay dividends.

NCLH's operating percentages have been increasingly favorable the past three years but nine month revenue is essentially flat.

Valuation Ratios

IPO Mrkt

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annualizing Sept 9 mos

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Norwegian Cruise Line Holdings







Royal Caribbean Cruises







Carnival Corp *







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IPOdesktop is neutral to positive on NCLH because analyst reports may be favorable based on future growth. For example, NCLH has three ships on order, with an option on a fourth, to add to its current 11 ship fleet.

Overall NCLH is priced at a premium relative to RCL and CCL. However, NCLH has made impressive improvements to its income statement expense ratios. It may be unrealistic to assume further expense ratio improvements, so profit growth will probably have to come from top line revenue growth.

NCLH is a leading global cruise line operator, offering cruise experiences for travelers with a wide variety of itineraries in North America (including Alaska and Hawaii), the Mediterranean, the Baltic, Central America, Bermuda and the Caribbean.

Each of NCLH's 11 modern ships has been purpose-built to consistently deliver a "Freestyle Cruising" product offering across its entire fleet, which NCLH believes provides a competitive advantage. By focusing on "Freestyle Cruising," NCLH has been able to achieve higher onboard spend levels, greater customer loyalty and the ability to attract a more diverse clientele.

However, if "Freestyle Cruising' continues to be popular, competitors can be expected to offer their versions as well.

NCLH utilizes a base-loading strategy to fill capacity by booking passengers as early before sailing as possible.

Base-loading is a strategy that focuses on selling inventory further from the cruise departure date by utilizing certain sales and marketing tactics which generate business with longer booking windows.

Base-loading allows NCLH to fill ships earlier, which prevents discounting close to sailing dates, in order to achieve targeted Occupancy Percentages.

Specific initiatives to achieve this include Casino Player Strategy. As part of this strategy, NCLH has non-exclusive arrangements with approximately 90 casino partners worldwide including Caesars Entertainment, in which affiliates of both Apollo and TPG have investments, whereby loyal gaming customers are offered cruise reward certificates redeemable for cruises on NCLH ships.

Through property sponsored events and joint marketing programs, NCLH has the opportunity to market cruises to Caesars Entertainment's customers. These arrangements with casino partners have the dual benefit of filling open inventory and reaching customers expected to generate above average onboard revenue through the casino and other onboard spending.

For the three months ended December 31, 2012, NCLH believes that Net Yields (Net Revenue per Capacity Day). will be between approximately $156.00 and $156.50, and Occupancy Percentage* will be approximately 102.4%.

*The ratio of Passenger Cruise Days to Capacity Days. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

In addition, for the first quarter of 2013, NCLH has slightly higher booked occupancy for cruises as compared to first quarter of 2012, and at higher pricing.

NCLH has three new ships on order and an option to build a fourth, all of which would be delivered through 2017.


NCLH intends to avail itself of the "controlled company" exception under the NASDAQ rules, which eliminates the requirement that NCLH has a majority of independent directors on its Board of Directors.

Pursuant to the terms of the Shareholders' Agreement, within 90 days following the consummation of this offering, our Board of Directors will consist of nine directors, including five directors designated by the Apollo Funds, two directors designated by Genting HK and two independent directors (one designated by the Apollo Funds and one designated by Genting HK).

Genting HK, 43.4%

Apollo Funds, 32.5%

TPG Viking Funds, 10.8%


Royal Caribbean Cruises Ltd.

Carnival Corporation

NCLH expects to net $370 million from its IPO. Proceeds are allocated to repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.