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With successive waves of on-off tariffs battering stock portfolios, investors the world over are looking for sheltered spots. Industrial gases, used in construction, manufacturing and hospitals, fit the bill. Companies in this space, with €87bn in annual revenue, already live in a deglobalised world.
Shunting the likes of oxygen, nitrogen, argon and carbon dioxide around is expensive, so customers are served on-site or nearby. More than four-fifths of sales at each of the big three — Linde, headquartered in Ireland, France’s Air Liquide and Air Products of the US — are local, Bernstein analysts calculate; international sales are minimal.
There is a lot of visibility in the so-called “invisible industry”. Buyers and suppliers strike 15-20 year contracts, which are protected from political whims. These generate recurring income via kit rented out on a long-term basis at customer sites. Chunky backlogs, to the tune of $10bn-plus at Linde and €4.5bn at Air Liquide, provide ballast.
A slowing economy, too, whooshes past the sector. Inventory build-ups are largely absent, as most gases are used soon after being produced. Customer bases are diverse: carbon dioxide canisters to pubs, oxygen tanks to hospitals and cocktails of speciality gases for etching chips.
Naturally the sector lacks the pizzazz of tech or defence; both, incidentally, users of gases. But stocks in the sector have held their own through tariff-induced volatility. And valuations have been drifting higher; even the lowest rated Air Products trades on 21 times next year’s earnings.
Growth stacks up. Ebitda is projected to grow 3-6 per cent at the big three this year and 6-7 per cent next, according to Visible Alpha aggregated estimates. But numbers may yet bubble up: Linde has trumped expectations 25 quarters on the trot.
Gases are not entirely immune to changing political winds. The sector is an early link in the chain towards renewable energy, for example producing hydrogen that is a staple of clean technologies like hydrogen fuel cell batteries. Some of the flurry of projects unrolled in a more benign era have already come unstuck. Air Products in February exited a trio of projects, including one in New York that was to have produced green liquid hydrogen, following the removal of tax credits. Linde faces delays at its $2bn clean hydrogen plant in Canada.
But that is a mere wrinkle. The main business of industrial gas companies provides a welcome respite from political hot air.