Business World

Tuesday 20 March 2018

Share watch: Air Liquide knows just how to turn on the gas

There is barely any manufacturing industry or mainstream service that is not a heavy user of industrial gasses
There is barely any manufacturing industry or mainstream service that is not a heavy user of industrial gasses

Johnny Lynch

Regular readers wouldn't have to be Miss Marple to conclude that I have a soft spot for the industrial gasses business. There is barely any manufacturing industry or mainstream service that is not a heavy user of these gasses; the healthcare sector would grind to a halt without them and the food sector would find the going tough too.

I expanded on this topic some weeks back when we examined the investment potential of the German gas giant, Linde. We pointed to the four giant corporations that dominate the sector globally. In addition to Linde, they are Air Products, Praxair and Air Liquide and between them they control 75pc of the world market.

Amid the present market uncertainties, which of these is the better bet? Well, Air Products and Praxair are dollar quoted and carry a currency risk, so bargain-hunters might choose to run the slide rule over the French company, Air Liquide.

Founded in 1902, it was quick to see potential in Belgium, Italy, and Japan and by 1913 it had become large enough to float on the Paris stock exchange. Like Linde it had its share of problems in and between two World Wars, but it never lost its idea of a global reach and today serves the unstoppable sectors like energy, construction, transport, pharma, food and electronics. Air Liquide employs 50,000 people worldwide. It has no fewer than 400,000 shareholders and sports a market value of €40bn, almost €10bn more than its German rival, Linde.

A group breakdown shows its gas and service sales accounts for the bulk of revenues. Gas sales to industry contribute 75pc of the total gas sales, with healthcare at 18pc and electronics 8pc.

The company sees the future growth in electronics, particularly in China and Japan. It also anticipates growth in healthcare, mainly from Europe with its ageing population.

Air Liquide's main market is Europe where almost half of group sales are made. The Americas and Asia-Pacific each have about a quarter of the group's business. Last year, Europe's revenue was driven by Eastern Europe with sales up 5pc. The Asia-Pacific market revenues rose by 12pc last year with growth in China exceeding 20pc. Japanese sales were satisfactory, driven mainly by demand in the electronics industry.

Growth in the Americas was robust at 8pc with strong growth in oxygen, hydrogen and electronics. South America had satisfactory growth, particularly in healthcare, and demand in Africa and Middle East was primarily due to South African growth. Interestingly the company's largest customer represents only 2pc of group revenue.

In a mixed economic climate marked by problems of exchange rates and declining oil prices, Air Liquide can be pretty happy with the performance registered. Group revenue rose by 4.5pc but operating profit was static at €2.6bn.

From next year to 2020, the group expects revenues to rise between 6pc and 9pc a year and plans investing €10bn in this period.

It is tempting to compare Air Liquide's share price performance with that of Linde. Both companies reached 10-year highs earlier this year with Air Liquide at €123 and Linde at €195. Since then they have dropped back; Air Liquide to €118 and Linde to €157. Both companies have dividend yields of two and price earnings multiple 23. Air Liquide has also been letting the dreaded axe fall on jobs in France, Germany and Italy.

Investors, who don't have to worry about such things, see a strong balance sheet, net profit growth, a return on equity almost double that of Linde and the future prospect of a dividend hike.

Despite this it is a hard call to choose between Air Liquide and its German rival. Both are solidly underpinned by rising demand for healthcare in both mature and developing markets around the world and the fact that industrial gasses have found a role in the electronics industry really helps. Recent results show gas revenues positive and strong results by business area. Investors could well roll the dice on this 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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