⚡ Gas giants of the future: who will lead the energy race? 🏁

Company presentation

The four leading players in the global industrial gases market are Linde, Air Liquide, Air Products and Chemicals and Nippon Sanso Holding. Each of these companies has a long history and has developed into a major player over time:

- Linde was founded in Germany in 1879 and is today an undisputed market leader.

- Air Liquide was founded in France in 1902 and ranks second on the world market.

- Air Products and Chemicals was founded in the USA in 1940 and is number three in the market.

- Nippon Sanso Holding has its origins in a company founded in Japan in 1910 and is currently number four in the industry.

Historical development

The industrial gases sector is characterized by remarkable stability. The same companies have dominated the market for over a century, indicating high barriers to market entry and a particularly robust business model. In recent decades, there has been increasing consolidation:

- 2018 saw the merger of $LIN (+0,88 %) and Praxair, creating the new industry leader.

- 2016 $AI (+1,53 %) Liquide acquired its US competitor Airgas to strengthen its market position

$4091 (+3,22 %) Sanso benefited from the mergers of its competitors and was able to expand through strategic acquisitions in Europe and the US.

Business model

The four companies produce and distribute industrial gases such as oxygen, nitrogen and hydrogen, which are indispensable in numerous sectors, from the steel industry to medical technology. The business model is based on long-term customer relationships, technological expertise and highly efficient logistics that enable the gases to be transported and delivered safely and economically.

Core competencies and future prospects

The companies' core competencies lie in the efficient production and distribution of industrial gases and in their in-depth technical expertise. All four companies are increasingly focusing on growth markets such as hydrogen technology and electronic gases, which are seen as key areas for the future. In particular, the growing demand for clean energy sources and the development of new technologies create potential for further growth.

Market position and competition

The global market for industrial gases is dominated by these four companies:

- Linde is the clear market leader.

- Air Liquide follows in second place.

-$APD (+0,91 %) ranks third.

- Nippon Sanso is number four on the market.

Together, Linde and Air Liquide control around 63% of the global market share, underlining their supremacy in the industry.

Total Addressable Market (TAM)

The global market for industrial gases is growing continuously and is expected to continue to expand in the coming years. Although exact figures on the "Total Addressable Market" (TAM) are not publicly available, it is estimated that the global market for industrial gases will reach a value of USD 173.43 billion by 2030.

Share performance

The valuation and performance of the shares of these companies show considerable differences:

With a market capitalization of $221.43B, Linde is currently the most valuable of the 4 companies. Since the IPO on June 17, 1992, Linde has returned 10,041% and on a 3-year basis is at 55.72%. Air Liquide is at 44.28% on a three-year basis and at 3,248.2% since the IPO on January 2, 1992, clearly behind Linde. APC is at 5,183.8% since the IPO on January 2, 1990, ahead of Air Liquide but behind Linde. On a 3-year basis it is at 11.07%. Nippon Sanso is at 71% and has only reached 1,311.56% since the IPO on January 6, 1992, making it the worst of the four stocks.

Performance

A look at the turnover of the last few years shows stagnation, and Sanso has recorded significant negative growth in some cases. This development is mainly due to the conversion into US dollars. Calculated in yen, sales have actually increased, but the dilution caused by the alignment with standard currencies such as the US dollar or the euro should not be underestimated.

Growth at Sanso is currently the strongest and has increased significantly in recent years. This is mainly due to the weak yen, which makes it possible to make offers more favorable. This is followed by Air Liquide and APC with slightly lower growth rates, while Linde has experienced a real slump in growth figures.

The gross margin is highest at Air Liquide, which is quite surprising. This indicates a solid core business, as Air Liquide is not diluting shareholders to improve its gross margin. This is the case to some extent at Linde, although the company is still significantly better off than APC. Sanso is also doing well with a gross margin of 40% and could probably improve further in the future.

The net profit margin paints a very different picture: APC performs best here, closely followed by Linde. Air Liquide and Sanso are well behind, each with a net profit margin more than 10 percentage points lower. As is so often the case, the American companies perform significantly better than the others.

In terms of earnings per share (EPS), the picture is similar to that of the net margin, albeit in reverse for APC and Linde. Nippon Sanso is also disappointing in this respect, achieving only modest dollar values.

In terms of free cash flow (FCF), all companies have been in positive territory for years, with the exception of APC, which has posted negative figures for the last two years.

As suspected, stock-based compensation is higher at Linde and APC than at the other companies, which makes the weak gross margin all the more surprising. Apart from this, the free cash flow figures of the other two companies appear all the better as they operate positively without the large costs for employee compensation.

Linde buys back significant amounts of its own shares and is therefore net negative, while Air Liquide only buys back smaller amounts.

Linde tops the list in terms of net debt. APC has increased its debt considerably in recent years, while Air Liquide is actively reducing its liabilities. Sanso Basis, on the other hand, shows a declining trend as the company has both reduced debt and has an advantage in the US dollar values reported as the debt is actually denominated in yen. Expressed in USD, these liabilities therefore appear less high.

The ratio of net debt to EBITDA is most favorable for Air Liquide and Linde, with all companies achieving a value of less than 3.

Part 2: https://getqu.in/uQP2uJ/

⚡ Gas giants of the future: who will lead the energy race? 🏁 Part 2:https://getqu.in/Mo9cBz/

Based on the ratio of EV to EBITDA, Nippon Sanso $AI (+1,53 %) Liquide is the cheapest. However, the differences between the top two companies are not particularly large and follow the pattern of the USA being valued higher.

The payout ratio of $4091 (+3,22 %) Sanso is very low and is expected to rise to around 30-35% in the coming years. Linde, on the other hand, is in a good position as the ratio is below 50%. The other two companies, where the ratio is over 50%, are rather high for capital-intensive companies of this size.

The return for shareholders at the companies is in the range of 2 to 4%, which is considered acceptable. $APD (+0,91 %) On the other hand, the return for shareholders is negative, which indicates a brutally unfavorable situation for shareholders.

The ROIC of around 8% for the top three companies is an okay figure. For Nippon Sanso, the situation is less satisfactory, but at least the value shows an upward trend.

ROE is above the important threshold of 10% for all companies. At $LIN (+0,88 %) has only seen a significant increase in the last few years and has almost reached the top position.

In terms of ROCE, Linde and Air Liquide are both close to each other and above the 10% mark.

In terms of ROTA, Linde is at the top and achieves almost double the result of the weakest of the four companies.

Conclusion

If I were to focus on just one company, it would be a difficult decision. Therefore, I look at two stocks, but still go through the decision-making process thoroughly. When I bring together all the relevant information about the industry and my personal priorities, I tend to see Linde as the preferred choice. The industry requires capital and Linde is the best positioned in this respect. In addition, the larger companies clearly benefit from being able to leverage their size effectively with banks and customers. Linde is well positioned in both Europe and America, and recent developments in the US have increased its focus on shareholder return. As an established brand, Linde also offers excellent diversification.

Air Products and Chemicals is also interesting, but has weaknesses compared to Linde in its ties to "heavy industry". Although this can have advantages, it has also brought disadvantages in recent years. I have therefore initially considered Air Liquide as a possible favorite. They are strongly positioned in many business areas and have a well-known brand, even if they have a "somewhat" weaker presence in the USA. However, their culture and domicile in Europe is super pronounced, which affects shareholder value a little.

If you want better diversification, which is the case with APC and Air Liquide as they cover different strengths, you should take the two, because you have to remember that Linde shares have only really gained in value in the last four years. Even though I personally would prefer Linde and Air Liquide, I actually think Air Liquide and APC are a better rational choice due to their diversified positioning and stable market position in the areas in which they operate.

And you buy shares for the future development and not the past.

"1, 2 or 3 You have to decide three fields are free. Pop! Plopp, that means stop, just one more hop, then it stays that way".

$LIN (+0,88 %)

$AI (+1,53 %)

$4091 (+3,22 %)

https://www.zdf.de/kinder/1-2-oder-3/titelsong-michael-schanze-100.html

$4091 (+3,22 %)

Quarterly figures 11.5.2023

EPS + 48% YOY

Sales + 18% YOY

Number 4 behind $APD (+0,91 %)
$LIN (+0,88 %)
$AI (+1,53 %) And valued much cheaper. 😊

Hello,

I would like to start a new series of articles "Chemistry in everyday life". In the meantime, I am still working on the contributions on bioenergy and e-fuels.

What do I actually invest in the category chemistry? In this series of contributions I would like to go into more detail about what you are actually invested in with some examples and illustrate application examples. I do not want to report further on the future potential. You have to determine this individually at your own discretion.

We turn air into money. The industrial gas manufacturers.

What are industrial gases?

Industrial gases are nothing more than gases produced on an industrial scale. So, according to the definition, almost anything in industry could be called an industrial gas.

Rather, these types of usages are called technical gases. They differ in the definition by their high degree of purity in the technical production. This already results in a conditional technical delimitation, which can only apply to gas mixtures that can already be described as "pure" in their composition. Due to the high degree of contamination in fossil carriers, natural fuel gases, such as natural gas and short hydrocarbons, such as methane, ethane, propane and butane, as well as natural carbon dioxide, are thus omitted.

So what can we use according to the definition?

The simplest gas mixture that everyone knows and should have at home is air. Roughly described, air consists of nitrogen N2, oxygen O2, noble gases and other small components. (Hydrogen, by the way, is not a component of air at all).

How can I decompose air?

The answer is quite simple: refrigeration.

Many mixtures of substances are thermally separated. Domestically, it can be easily explained in cooking. Some people add a shot of red wine to their well-known bolognese or tomato sauce. This must then be boiled out. The alcohol evaporates. A watery solution remains in the sauce.

You have to imagine it the other way around with air. Gases require extreme colds to liquefy. Nitrogen for example -196°C, oxygen -183°C.

Of course, it would not make sense to cool a certain amount of air down to this temperature. That would be very difficult without using ordinary cooling methods in general.

A remedy is the Joule-Thomson effect.

Simply explained:

You take a certain volume of gas. You now compress it. It becomes hot and the volume decreases. Now you expand this gas again. The heat is released to the environment, the volume is increased again, but the gas itself becomes cold.

If you now assume extremely large pressure differences, this leads to air liquefying.

Since the gases contained therein now have different condensation temperatures, they can be fractionated.

Imagine a container in which different temperatures prevail. At the bottom of the container it is warmest. Towards the top it gets colder. Consequently, you would have a layer of oxygen at the bottom, nitrogen and all other gases above it.

But this statement is only conditionally correct, because the order is of course different. In the consideration I have considered only nitrogen and oxygen as the largest components. In between would be the condensation points of various noble gases.

A very simple GIF is attached.

The major competitors.

Historically, it is actually disputed who can now first claim the discovery of air separation. Many roads lead to ... Germany? England?

The first large-scale refrigeration machine was invented by Carl von Linde between 1892/93. However, it was based on carbonic acid. Therefore not comparable to the technical approach used today.

In 1895, the British researcher William Hampson filed a patent for air liquefaction. Linde just a few days later in Germany.

Hampson later sold his patent to the British Oxygen Company (BOC). What became of Linde's patent is still clear today in everyday white lettering on a blue background. In 2006, Linde took over $LIN (+0,88 %) the British competitor. The British business is still operated under the BOC brand today.

A little later in 1902, Georges Claude also filed a patent for the liquefaction and separation of air - the foundation stone for Air Liquide $AI (+1,53 %) .

The still significant competitor Air Products & Chemicals $APD (+0,91 %) did not enter the market until 1940. Originally as a small-scale supplier of oxygen generators for the U.S. military.

The typical Far East representative Nippon Sanso $4091 (+3,22 %) was originally a manufacturer exclusively for oxygen. It was not until 1935 that the first large-scale air separation succeeded. The company received great notoriety and market share on a global scale in 2016. During the merger of Praxair and Linde, Praxair's European parts were transferred to Nippon due to antitrust conditions. In the European market, they are more known under the brand name "Nippon Gases".

But why industrial gases now?

All manufacturers are in competition not only for air. A very large part of their market is also made up of industrial gases, especially hydrogen. Hydrogen is produced on a large scale by steam reforming.

A synthesis gas consisting of short-chain hydrocarbons, such as methane, for example, is heated in a reactor with steam to such an extent that methane breaks up into its constituent parts. Hydrogen and carbon monoxide are produced, which are washed out in a further step to form carbon dioxide and further hydrogen.

The intended use of the individual gases

Industrial gas manufacturers have quite a considerable moat. Air is (still) a free raw material. It hardly gets any cheaper, so to speak.

Nitrogen:

The largest component of air enjoys huge economic benefits. Domestic frozen goods are usually "snap-frozen" with nitrogen, and in industry it is used for general protection as an inert gas.

Nitrogen continues to form the basis for all agrochemical and fertilizer technology. Many explosives are also nitrogen compounds.

Application in liquid form is found in research in superconductors, but also in the storage of biological and medical samples, as well as sperm and ova.

In civil engineering, there is application in soil freezing, as well as irreplaceable importance in materials technology, with regard to steel utilization and recycling of industrial metals.

Oxygen:

Without oxygen, no basis for steel. Each process of combustion can be different by a specific concentration of oxygen.

But also in a mixed ratio with nitrogen it is medically administered as breathing air.

Furthermore, one bubbles oxygen in lakes whose ecosystem has died to regenerate this.

The chain of examples for oxygen and nitrogen could of course be extended countless times. These are only some examples, which are to be regarded quite with a moat.

Further examples can be found in the field of welding. Modern welding processes hardly ever use acetylene as the welding medium. Welding of higher quality is achieved using inert gases. This is known as "inert gas welding". This describes subgrouping of arc welding. Whether MAG, MIG or flux-cored welding: materials and fabrications of our time must always meet the highest standards. In our industry, this applies above all to high quality standards, but more importantly to safety standards, which are less reliable in comparison with other welding methods. (Cold welding by man power excluded. The industrial workers, especially mechatronics and mechanics know what I mean in this respect 😂).

I hope I could put you in the right mood for the series of contributions. Which everyday object should I explain soon and which listed companies are involved in this?

All my suggestions originate with to a large extent my head. One may hardly believe it.

Additionally I always use the encyclopedia of chemistry (ISIN 978-3131027597)