Saturday 3 December 2016

Share Watch: The meteoric rise and rise of German gas giant

John Lynch

Published 22/06/2015 | 02:30

Linde Group share price
Linde Group share price

If you sat down to think what's indispensable to modern living, it's a fair bet that industrial gases would be way down the list of most people's priorities.

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However, without these gases the food industry would come to a grinding halt; the world's hospitals and medical institutions would have to close; and industry would have to find alternative ways of cutting, freezing, preserving, processing, welding, smelting, roasting, branding or incinerating - plus an awful lot more.

These philosophical thoughts occurred to me as I viewed the merits of investing in the Linde Group, the German provider of industrial and medical gases globally. It provides work for 63,000 people in 100 countries and is valued at €31bn.

Linde's founder was Carl Linde, a pioneer of refrigeration technology. Incidentally, European brewers were among the first to appreciate the value of Herr Linde's technology and the firm received an order in 1904 from what was then probably the world's largest brewery, one Arthur Guinness, Son & Co in Dublin.

Like much of German industry, Linde had its ups and downs before, during and after two World Wars, and after World War II it chose, like so many of its counterparts, to develop its home market and later expand beyond Germany by acquisition.

Linde has three divisions; gases, plant engineering and a division which specialises in the distribution of chilled, frozen food and drink in Britain and Ireland. The largest division is gases with industrial and medical gases.

Its gases are used across all continents and almost all industries, ranging from steel to food processing.

Linde's healthcare business is medical gases, medical devices and related services, operating in more than 60 countries worldwide.

The company is also a global leader in environmentally friendly hydrogen, which many car manufacturers think could well be a future replacement for petrol and diesel.

Linde engineering consists of forklifts and plants used in the petrochemical industry, refineries, fertiliser plants, treating natural gas and the pharmaceutical industry, with half of the division's sales coming from Europe.

Only a merchant banker with a vivid imagination would make sense of Linde's acquisition and divestment story from the 1960s until the start of the new millennium. It's been in and out of fridge and freezer businesses; it's embraced markets in Brazil, Australia and China; it acquired France's largest forklift producer, a US materials handling company and Lansing Bagnall, a UK forklift company.

Linde continued its acquisition policy into this century, with a number of bolt-ons and its two most significant acquisitions, the Swedish Aga Gases and British Oxygen Company (BOC). At the time, BOC was a player with two million customers in 50 countries, including Ireland. Recently, it acquired Lincare, a US provider of respiratory services, and is using it as a vehicle for the Chinese market. To show there is no sentiment in business, after 125 years it sold Carl Linde's original German business to the US Carrier Corporation.

Linde's figures in the last five years have been quite impressive. Its group revenues jumped from €12.8bn to €17bn last year, averaging a rather remarkable annual improvement of €1bn. Operating profits in this period increased no less than €1bn from €3bn to €4bn.

Last year, gases sales of €14bn and operating profits were flat. However, the company anticipates gas profits this year to increase by 6pc. The engineering division had mixed results last year and orders for this year are down 60pc, the pullback in shale projects and Middle East plant orders hasn't helped.

Investors in Linde admire the company's cash generation capability along with its commendable dividend policy. As the company together with Air Products, Air Liquide and Praxis have 75pc of the world's industrial gas market, it enjoys pricing power.

With group sales expected to reach €18bn and income at €4.3bn, Linde could be a worthwhile share.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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