On Friday, shares of Norwegian Cruise Line (NASDAQ:NCLH) will begin trading on the open market. The company is a small player in the large worldwide cruise line. Norwegian has 11 ships in its ownership, making it much smaller than rivals Royal Caribbean (NYSE:RCL) and Carnival Cruise (NYSE:CCL). Should investors consider the Norwegian IPO or stick to the two larger names?
Norwegian Cruise owners Apollo, Genting, and TPG plan on selling 23.5 million of a total outstanding 200.47 million shares available. After originally announcing plans to sell in a range of $16-$18, increased demand took shares to $19 Thursday night. After the IPO, the ownership stakes will be: Genting 43.4%, Apollo 32.5% and TPG 10.8%.
Norwegian offers cruises to Alaska, Hawaii, Mediterranean, Baltic, Central America, Bermuda and the Caribbean. One of the things that sets Norwegian apart is its "freestyle cruising", which allows more flexibility and individual control to customers. Norwegian is also the only cruise line that offers inter-island itinerary to Hawaii in its entirety.
Here is a look at the company's strengths:
· Leading cruise operator with high-quality product offering
· Freestyle cruising
· Established brand recognition
· Strong cash flow
· Highly experienced management team
· Strong shareholders with extensive industry expertise
Strategies going forward include:
· Attractive product offerings
· Maximize net yields
· Brand expansion through disciplined newbuild program
· Improve operating efficiency and lower costs
· Expand and strengthen our product distribution channels
Of the 11 ships, all have been built since 1998. Norwegian ranks among the newest in terms of average age for cruise lines. An average age of 7.9 years is one of the industry's best.
In the last twelve months, Norwegian posted revenue of $2.26 billion and net income of $165.6 million. Of that revenue total, $1.6 billion came from passenger tickets and the remaining $666 million was from onboard purchases. Revenue has climbed steadily over the last four years with other totals including: $2.22 billion (2011), $2.01 billion (2010), $1.86 billion (2009).
The company's net yield, a key measure in the cruise industry, grew to $182.78 during the last quarter. This is up from $173.39 in 2011, $168.29 in 2010, and $156.14 in 2009. Higher spending by each customer has fared well for the company and is part of the reason the fleet will soon be expanding.
Thanks to strong cash flow and bookings, Norwegian is investing in new ships. In 2010, the company ordered two new boats, which are set to be delivered in April 2013 and January 2014. Also in 2012, one new ship was signed with a delivery expected in the fourth quarter of 2015. The 2015 delivered ship, which will cost around $900 million, will be the largest in the company's fleet.
When stacking up Norwegian against the competition, shares look attractive. Based on 200.468 million outstanding shares and a price of $19, Norwegian trades with a price to sales of 1.69. Rivals Carnival and Royal Caribbean trade at 1.93 and 1.08 respectively. Both large cruise lines are trading near fifty two weeks high. The cruise industry is clicking on all cylinders and bookings are at all time highs. I remain bullish on this IPO and would buy under $22.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NCLH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.