Norwegian Cruise Line, the No. 3 cruise ship operator in North America, priced shares of its initial public offering late Thursday at $19 a share, and when it opened Friday, the stock soared to over $25.
The shares began trading at 10 a.m. ET, and quickly jumped to nearly $26 a share before losing a bit of steam.
But only a bit: Shares still closed up 31% for the day by the end of the regular trading session, at $24.89.
Late Thursday, shares of the Miami-based operator of 11 cruise ships were priced at $19 a share, signaling a strong reception from investors. The pricing was well above the expected range of $16 and $18 a share.
The deal raises $447 million for the company, since it sold 23.5 million shares. It will trade under the ticker "NCLH" on the Nasdaq electronic exchange.
Norwegian's IPO gives the cruise line a market value of $3.8 billion, trailing the $29.7 billion value of market leader Carnival Corp. and Royal Caribbean Cruises' value of $8.2 billion. The deal also comes as demand for cruises remains strong and building.
"There's interest in this IPO. They're flying in the footsteps of Carnival," says John Fitzgibbon of IPOScoop.com. "Cruise line (stocks) have been doing well." Shares of Carnival have gained 11% over the past twelve months and Royal Caribbean shares are up 30% during that time frame.
Investors are attracted to the fact that Norwegian is a smaller carrier than Carnival and Royal Caribbean, and could have more robust growth prospects. Carnival Corp. – the parent company of Carnival, Princess, Holland America and seven other major cruise brands – operates 99 ships around the globe. Royal Caribbean Cruises operates 39 ships under five brands including its namesake Royal Caribbean and Celebrity Cruises.
Norwegian is smaller than Carnival in revenue, too. Norwegian brought in $2.3 billion in total revenue in the 12 months ended Sept. 30, 2012, the latest data available. That compares with the $15.4 billion in revenue brought in by Carnival in the 12 months ended Nov. 30, 2012. The cruise lines use slightly different fiscal year calendars.
Norwegian "is a smaller player that could have more ships coming online," says Francis Gaskins of IPO Desktop Premium.
Norwegian's 11-ship lineup is in the midst of a debt-fed expansion under the stewardship of owners Asian cruise company Genting HK and private-equity firms Apollo and TPG. The cruise line has three ships on order with an option for a fourth to bring online over the next three years.
The 4,000-passenger Norwegian Breakaway, currently under construction at a shipyard in Germany, is scheduled to be christened in New York in early May. A sister ship, 4,000-passenger Norwegian Getaway, arrives early next year. The cruise line also recently ordered a 4,200-passenger ship for delivery in 2015 with an option for a sister to come in 2017.
Such a rapid expansion marks a big investment for a company that is already carrying a considerable amount of debt, totaling nearly $3 billion as of September 2012. Much of that debt carries a variable interest rate, which could mean skyrocketing interest costs if rates rise. A one percentage point increase in interest rates would boost the company's annual interest expense by $17.6 million, a roughly 10% increase, the company said in its IPO filing. The proceeds from the IPO will be used to reduce the company's debt to about $2.6 billion, the filing says.
Investors are betting that cruise demand will remain strong. The industry is still recovering from the Costa Concordia disaster in early 2012 where a cruise ship operated by a Carnival unit was grounded near Italy resulting in passenger deaths.
The Norwegian IPO kicks off what's expected to be the start of some busy activity in the IPO market. Nine IPOs are on the calendar for January, says Renaissance Capital. As the strong reception for Norwegian shows, "the IPO market is alive and well," Gaskins says.
By Matt Krantz and Gene Sloan, USA TODAY