Linde plc is a market leader and a must-consider if you want to invest in hydrogen, but prefer large companies. Since Linde AG and Praxair became one company in 2018, its share prices developed really well. In addition, Linde is a good company if you are looking for regularly growing dividends.
Who or What is Linde?
Linde AG was founded in 1879. Since then, it entered and left quite some product areas and if you are German, you might remember the fridges with the Linde name on it. In 2018, Linde AG merged with Praxair. Since then, the name is Linde plc and it is headquartered in Dublin.
Since the merger, Linde is the worldwide market leader for industrial gases. Its major competitor is AirLiquide, which is a bit smaller in size.
On the stock market, the history of the shares goes back until 2018 (the day of the merger), however, both companies have a long and successful past.
Linde plc has two major divisions, which are Linde Gases and Linde Engineering. Across both, it has more than 80,000 employees and made more than 23 billion Euros of revenues in 2020. All shares on the market (market capitalization) amounts to more than 135 billion Euros.
As it is the case for most companies, the earnings per share were heavily impacted by Corona. In 2020, Linde earned about 4 Euros per share. For 2021, that number is expected to increase again to about 8.9 Euros.
What exactly Does Linde Do? What Business Would you Buy?
Linde has two major divisions, which are:
- Linde Gases (with 24.2 billion Euros of revenues). Primary products of this division include
1) atmospheric gases, such as oxygen, nitrogen, argon, and rare gases
2) process gases, including carbon dioxide, helium, hydrogen, electronic gases, speciality gases, and acetylene
- Linde Engineering (with 2.8 billion Euros of revenues). Linde Engineering designs and builds plants for natural gases, air separation, hydrogen, synthesis gases, and other types of plants.
What Differentiates Linde as an Excellent Investment?
- It is market leader in the growing hydrogen market
- Linde literally produces its prdocuts from air
- The business that Linde operates in builds on very long-term partnerships with its customers
- It is a major technological innovator
What Risks are Associated with Linde Shares?
There are always multiple risks involved if you decide to buy shares of any company. Apart from that, I believe that Linde´s business is a relatively safe one. Keep in mind that the lowest risk shares are not always the best ones. For instance, there are many small companies in the hydrogene area that show higher growth rates. However, they would also be much more risky due to less diversification and a smaller size.
Also consider that Linde´s business is mainly regionally driven and decentralized. Risks might include that there is a loss of efficiencies or regional problems due to that structure. Apart, Linde´s operations are in a relatively highly automated sector. If another company invented a technology that is much more efficient, that could be problematic for Linde. After all, a substantial amount of the input material is freely available.
Taking an objective approach to the risk of a share, we consider the share´s beta. It is an indicator that measures the relative movements (up and down) of a share compared to the overall market. If the indicator is over 1.0, the share is generally more risky than the average market. If the indicator is below 1.0, the share is less risky. This is also called, a “defensive” share.
The Beta of Linde is about 0.78, which indicates that it is a more defensive share that is less volatile than the overall market.
What are the Characteristics of Linde Shares?
Linde shares provide a nice mix between value growth, dividends, and dividends growth. Here are the numbers:
In 2020, Linde paid 3.27 Euros of dividends per share. For 2021, the expectations are to get 3.69 Euros paid out. As we already mentioned that Linde expects earnings per share of about 8.9 Euros, the payout ratio is below 50%. This is quite sustainable and leaves room for future increases. Based on the share price, the paid dividends corresponded to about 1.4% to 1.5% of the share price.
Looking at the return on invest in the past, we get the following results:
Last 3 months: +10%
Last 12 months: +28%
Since merger in November 2018 (almost 3 years): +83%
As comparison, the numbers of the MSCI World look like the following:
3 months: +10%
12 months: +33%
3 years: +49%
Hence, Linde had a quite similar development over the last 12 months, but showed a much stronger growth in the years 2018 to 2020 (directly after the merger).
What trends are important for the success of Linde?
Generally, the demand for industrial gases is constantly increasing. On top, hydrogen sits at the center of the development of sustainable machines and vehicles of the future (trucks, ships, large machines etc.) Given that, Linde is in an excellent position to benefit from an increased demand.
What´s the Corona impact on Linde?
Given the fact that Linde operates in a long-term business, the Corona impact on Linde was much less than on other companies. During the first lockdown in March / April 2020, the share price dropped by about 25%. Other companies, such as Walt Disney, had much worse experiences.
Keeping that in mind, even Linde was heavily impacted by Corona. In the financial report of 2020 it is mentioned, that projects worth more than 8 billion Dollars have been postponed because of the crisis. However, because their industry plants and pipelines could further operate (not many human interactions, but highly automated), sales dropped by only 3.5% compared to 2019 and are expected to increase to a new record in 2021.
Is Linde a sustainable company?
Generally, Linde puts a large focus on sustainability of its operations. For instance, the 2020 financial report highlights that they supplied world´s first ferry with green energy, saved 300 million gallons of water, and gained more than 1/3 of its electricity needs from low-carbon sources.
In Europe, Linde signed contracts with partners to capture their carbon dioxide emissions and repurpose them for commercial use, e.g., for food freezing, dry ice, beverage carbonation, and water treatment.
Linde is also part of the Dow Jones Sustainability World Index (as only Chemical industry). Further sustainability targets until 2028 are described on their website.
Is hydrogen per se economically friendly? Probably not. Recently, there has been quite some discussion about the ecological friendliness of hydrogen. Generally, green hydrogen is ecologically friendly, whereas blue hydrogen is not necessarily. If you are interested in a deeper discussion on that, the difference between blue and green hydrogen might be a good start.
Am I investing in Linde?
Yes, I am invested and very happy with it. However, there are a few aspects to consider.
- My analysis did not reveal to what extend Linde sells hydrogen compared to the other gases.
- Neither do I know about the demand growth rates of those gases.
- It might also be that Linde shares are hyped because of the general trend in the last few years towards hydrogen companies.
However, Linde´s business is a very stable one that builds on long-term partnerships.
If the share price increases drastically, it is quite clear that the actual business cannot grow at the same pace in a short time period. Taking this into account, I believe that Linde is a good option for a regular savings plan.