INSIGHT: Linde talks of stronger gases, projects growth

04 May 2010 15:46  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The market did not react favourably to Linde’s first quarter results, released on Tuesday, but some investors see continued strength ahead for the shares.

It is all a matter of degree. Linde’s gases sales did not grow quite as fast as those of its larger rival Air Liquide. Linde also warned that some of the big projects that might be undertaken by its engineering division were being postponed because of continued economic uncertainty.

Its shares were down more than 4% at just after 15:00 central European time on Tuesday. Germany’s DAX index was down just over 1.7% at the time.

But as one analyst is reported as saying, you can’t have everything. Linde’s bottled gases have not grown as fast sequentially away from the downturn as Air Liquide’s, but then the Linde business did not fall as far in the midst of the economic crisis.

Linde’s engineering business - it makes olefins, natural gas, air separation, hydrogen and synthesis gas plants - put in a strong first quarter 2010 performance. Order intake was up 76% compared with the first quarter a year ago and the order backlog, worth close to €4.3bn ($5.7bn) at the end of the latest quarter, remains strong. Division sales year on year were down 5.8% but the operating margin improved to 9.9% from 8.2%. Credit Suisse called that margin “very strong”.

Linde is capitalising on growth in places like China, India and the Middle East. It is securing more big plant contracts and has what management has called a “strong project pipeline” in tonnage products - the bulk gas production projects it sells to the operators of industrial facilities of all sorts. Linde says it sees “gradual demand improvement” in the bulk and cylinder gases businesses.

Cylinder gas sales in the quarter on a comparable exchange rate basis were essentially flat while on-site sales were up 10.3% and liquefied gases sales up 5.2%. Not surprisingly growth came primarily from business in the emerging economies. Asia and eastern Europe gases sales were up 17.3% (on a comparable basis). Gases sales in western Europe were up 2.6% on the same basis and sales in the Americas up 5.9%.

“Business performance in the various regions comprising the Gases Division illustrates the regional differences which underlie general economic trends. Whereas the economic recovery is still fairly weak in the mature economies, some of the emerging economies were able to achieve double-digit growth rates once more,” the company said in a statement.

CEO Wolfgang Reitzle was a bit more upbeat than the corporate statement would suggest, however. "It looks as if the worst is behind us,” he said, adding: “Towards the end of the first quarter in particular, we noticed a marked revival in demand".

Linde, it seems, can be relatively confident about 2010. The late-cycle cylinder gas business can improve with the strengthening developed world economies. The engineering division is well placed to capture growth with new projects in emerging markets and important energy and environment driven capital investments. The company has controlled costs and helped drive up profitability while capturing more top line growth.

The solid results though were unlikely to be enough to satisfy the market on Tuesday, Credit Suisse said in a note to investors, but gave reasons why it preferred the stock to other industrial gas players.

Linde’s is still a cost control story following the assimilation of rival BOC and the company still has numerous synergistic levers to pull. Underlying growth prospects look strong. And then one can always factor in the recovery.

($1 = €0.76)

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By: Nigel Davis
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