Strong earnings for new industrial gases projects, Bernstein says

16 July 2013 11:44  [Source: ICIS news]

Europe eurosLONDON (ICIS)--New projects in the industrial gases sector completed between 2010 and 2012 have been strong drivers of profitability for two of Europe’s largest gases players, US analyst Bernstein Research said on Tuesday.

The firm said that new projects developed by France-based firm Air Liquide and Germany’s Linde that came onstream over that period have boasted an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of around 25%.

Bernstein estimates that the new projects have added around €440m ($571m) to Air Liquide’s EBITDA, and €320m to Linde’s from 2010-2012, representing 50% and 30% of EBITDA growth respectively.

The firm has rated both companies as ‘outperform’, with revenue growth rates predicted to be over 200 basis points above consensus outlooks.

Bernstein has set its target share price for Air Liquide at €121 per share, 24% up on its closing price of €97.37 on 12 July, while its target for Linde is €178 per share, a 22% increase on its 12 July closing price of €146.30 per share.

“The industrial gas business has many attractive characteristics – concentrated markets, take-or-pay contracts, a steady stream of new outsourcing customers – which we and investors have increasingly appreciated,” Bernstein said.

“Overall, we continue to prefer Air Liquide to Linde as we expect the revenue growth impact from project start-ups to be greater from 2014,” the firm added.

To calculate the contribution of new projects, Bernstein calculated annual EBITDA changes based on underlying volume growth, new project growth, price growth, cost savings and currency movements.

In response to investor concern that declines on returns on capital for both companies over the last three years have been due to accelerations in new project growth, Bernstein stated that the trend had been driven by volume declines in western Europe.

($1 = €0.77)

By: Tom Brown
+44 208 652 3214

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