Air Liquide: gas group has room for expansion
Near-term outlook is gloomy but company’s geographical and product diversity provides some comfort
As a large supplier of industrial gases, France’s Air Liquide cannot escape the ebbs and flows of world economic forces. The near-term outlook is gloomy, particularly for a group based in Europe, where the threat of a recession weighs heavily on shares. A downturn in industrial production will hit demand for its products.
As if to avoid intruding into the private grief of customers, Air Liquide tactfully referred to a “complex macroeconomic environment” in a third-quarter sales update. The key question for investors, as with any mature business these days, is “how defensive is this company?”
Industrial gases is a concentrated industry. That should help Air Liquide pass on cost increases. Exposure to a European manufacturing sector threatened by energy shortages is a bigger problem. The effects of that could take time to emerge. Air Liquide contracts are sometimes as long as 20 years.
Geographical and product diversity provides some comfort. The revenues of the predominant gas and services division were up 7.2 per cent at €7.9bn in the third quarter. In the Americas sales grew almost 13 per cent and more than a tenth in Asia-Pacific.
In the latter, sales to the electronics business helped. Antagonistic pushes by China and the US for chip self-sufficiency should expand Air Liquide’s market.
Air Liquide, whose group net profit rose 5.3 per cent to €1.3bn at the half-year stage, is diversifying its product range, investing €200mn in hydrogen production in China. The gas has a promising future as an energy storage and transport medium, but still has some time before becoming fully commercial.
Shares in Air Liquide trade on an enterprise value to ebitda multiple of about 13 times, a little below rival Linde. This historically German business is pulling its Frankfurt listing in favour of New York.
Air Liquide’s stock has dropped this year, while outperforming the Stoxx 600 industrial goods index. Like some gases it will remain volatile, but the business itself has medium-term scope to expand.