By Andrew Bary
Viking Cruises founder and CEO Torstein Hagen says the company's child-free ships have been critical to its success as it courted older customers for luxury European river and ocean journeys.
Viking Cruises parent, Viking Holdings, had a successful debut in the public markets Wednesday, with the company's shares closing at $26.10, up 8.7% from the IPO price of $24. The deal was priced at the upper end of an anticipated range of $21 to $25 a share.
Viking sold 64 million shares in its initial public offering, raising $1.5 billion, and the company now is valued at $11 billion. Some 54 million shares were sold by existing shareholders in the IPO and 11 million by the company.
Hagen, who owns more than half the stock in Viking, told Barron's that the company's policy of not allowing children under 18 on its 92 ships has been a "huge selling point" with Viking's Masterpiece Theater demographic , cultured people 55 and over who are mostly Americans. The company has shrewdly marketed its cruises with ads on the PBS show, including its hit series Downton Abbey.
Viking's approach contrasts with so many travel-oriented companies that welcome families with children.
"It creates a totally different atmosphere," Hagen says. "No screaming kids running around, no waterslides and bumper cars." The company also has no casinos on its ships. Its slogan is "exploring the world in comfort," and it has targeted cultured customers interested in art and history.
Founded in 1997, Viking made its name with European river cruises on such waterways as the Seine, Rhine, and Danube. It branched out into the ocean market in 2015, where it now gets about half its revenue and which is concentrated on cruises on the Mediterranean and Baltic seas. "Ocean has huge potential," Hagen says.
Hagen, 81, also sees growth opportunities for the company with Chinese customers as it absorbs significant new capacity in the coming years. It operates 92 ships and about two dozen on order and due for delivery in the next few years.
While the company's clientele is overwhelmingly English-speaking, Viking has had success in China. Four of its European river ships are devoted to Chinese guests, with a Mandarin-speaking crew and Chinese food.
Looking at valuation, Viking trades for nearly 50 times its 2023 pro forma earnings per share excluding special factors. It's cheaper based on free cash flow, valued at about 11 times last year's free cash flow.
It trades for about 13 times 2023 earnings before interest, taxes, depreciation, and amortization, or Ebitda, based on an enterprise value (equity value plus net debt) of around $15 billion. The company is coming off a solid first quarter with revenue up about 14% to around $715 million (There was limited first-quarter financial disclosure in the IPO prospectus.) Revenue in 2023 was up nearly 50% to $4.7 billion.
The company has cut its net debt, which is under four times its trailing annual Ebitda of more than $1 billion.
Viking bills itself as the only public luxury cruise line -- in contrast with industry leaders like Carnival and Royal Caribbean Group, which focus more on the mass market and the Caribbean.
Hagen says that Viking takes a more simplified approach to luxury with no grand marble interiors and white-gloved crew members. "We're not an opulent operator," he says. The average cost of a Viking cruise is pricey at more than $7,000 per person, against less than $2,000 for Carnival. Viking carried about 650,000 passengers last year.
Hagen focuses on little things, like making sure that guests can easily figure out hot and cold water in showers.
He says the IPO was prompted in large part by the desire of two big investors, TPG and Canada Pension Plan Investment Board, for liquidity. Each owned over 20% of the company before the IPO and together sold 53 million shares of the 64 million shares offered in the IPO. They together still hold about 30% of the company.
Both originally invested in the company about eight years ago.
Hagen didn't sell a share in the IPO and says he has "no intention of selling any shares."
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 01, 2024 17:09 ET (21:09 GMT)
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