Should I Buy Tui Travel Plc?

Tui Travel's (LSE: TT) share price has been flying lately, up 33% over the past six months. Over 12 months, it has soared a gravity-defying 120%, compared to just 25% for the FTSE 100. Have I left it too late to hop on board?

Investors in Tui Travel, which owns Thomson and FirstChoice, have had plenty of fun in the sun but, like any holiday romance, it is difficult to sustain in the longer term. Yet the world's largest tour operator has staying power, grabbing profitable market share and cashing in on strong demand from sun-hungry, recession-sick Brits and Nordics. Tui's full-year underlying operating profit growth is on course to hit 10%, according to its recent interim six-monthly results.

Fun in the sun

Tour operators typically lose money in the winter, when seasonal bookings are sharply down, but Tui has been trimming its losses. Operating loss fell £43m to £274m, a drop of 14%. Pre-tax losses shrunk by £53m to £404m, despite a 1% drop in Q1 revenue to £5.39bn.

The annual summer holiday is one tradition most of us still like to observe. Summer 2013 bookings are up 15% in the UK, 11% in the Nordics and 9% in Germany, offsetting a slowdown in France. That's the benefit of diversification. The internet has whacked many a business model, but package holidays could be a surprise exception. Maybe we're getting a bit tired of DIY holidays, and want somebody to do the legwork for us, at an all-inclusive price. Tui has also fought back through its strategy of offering "unique holidays" unavailable elsewhere.

Tui or not Tui?

Management is confident, hiking the interim dividend 10% to 3.75p. That leaves Tui yielding 3.3%, close to the FTSE 100 average and nicely covered 2.2 times. This is forecast to rise to 3.9% by September 2014. Despite the recent share price surge, at 13.9 times earnings this stock isn't as pricey as I would have expected (it has largely been making up lost ground after a troubled 2010 and 2011). Earnings per share (EPS) growth of 11% in the 12 months to September and 10% to September 2014 suggest Tui could still have a little further to travel.

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