The four companies that make up the hotel and tourism sub-sector have widely differing characteristics, although all are cyclical with very limited order visibility. That being the case, it only seem right to look at each in turn.
The most domestically focused of the four is Tui Travel (TT.). Like other UK-consumer businesses, its shares experienced a substantial re-rating from less than seven times earnings to nearly 11 times. In part, this was a result of the general warming to prospects for the UK consumer. But Tui's strategy of selling more higher-margin niche holidays and pushing popular all-inclusive deals has also been important. While some of the re-rating upside may have disappeared, the shares do not look expensive by historic standards, with the current PE ratio on a par with the five-year average and at a 20 per cent discount to the 10-year average.
InterContinental Hotels (IHG) is benefiting from its exposure to the US, where the industry has been performing strongly as economic confidence returns. This is a trend that could continue in 2013 if the current issues surrounding the country's deficit don't create a crisis. There is also the prospect that trading in China could pick up given the encouraging economic data recently coming out of the region. The company is implementing a $500m (£313m) share buy-back programme, which broker Panmure Gordon has estimated could boost EPS by 8 per cent this year.
The other hotel operator in the sector, Millennium & Copthorne (MLC), has been having a tougher time of late. Although property development and dealing often cloud the underlying performance of its hotels, there is no doubt that trading has been dipping, especially in Asia, which is a major market for the business. The performance last year would have been worse if not for the positive impact of the Olympics on trading in London – not something that is going to be repeated in 2013. However, better recent economic news from China provides some ground for optimism. The company's debt-free, freehold-backed balance sheet also means there is plenty of potential for investment into the business and its brands.
Cruise-ship operator Carnival (CCL) ended last year on something of a bum note after warning that weak demand from Europe was likely to push EPS below expectations. However, there are some reasons for optimism about the coming year, given a reduction in capacity in the industry and the potential cyclical upside represented by a 12 per cent gap between current berth yields and those achieved at the top of the market in 2008.
| COMPANY NAME | LATEST PRICE (P) | MARKET VALUE (£M) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| CARNIVAL | 2,399 | 4,381 | 25.8 | 2.6 | 10.9 | Sell, 2,440p, 4/01/13 |
| INTERCONTINENTAL HOTELS | 1,753 | 4,704 | 20.1 | 2.3 | 47.4 | Hold, 1,714p, 7/08/12 |
| MILLENNIUM & COPTHORNE HOTELS | 524 | 1,699 | 13.0 | 2.4 | 24.2 | Hold, 488p, 2/08/12 |
| TUI TRAVEL | 288 | 3,217 | 11.2 | 4.1 | 70.4 | Hold, 277p, 4/12/12 |
