EUR 850.00 For Business Accounts Only

Morningstar | After a Fresh Look at Air Liquide, We Maintain Our EUR 108 FVE and Narrow Moat Rating

Air Liquide benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses are running smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.Demand for industrial gases is strongly correlated to industrial production, increasing roughly in line with industrial production growth in developed countries and up to 1.5 times industrial production growth in developing countries. As such, organic revenue growth will largely depend on global economic conditions. That said, we think Air Liquide can fuel additional revenue growth through mergers and acquisitions, asset buybacks, and new projects, especially in emerging markets such as China and India.Projects in Asia, the Middle East, and Africa account for a growing portion of Air Liquide’s EUR 2.6 billion backlog, and we expect the company to continue pursuing business opportunities in those regions. Furthermore, Air Liquide is among the global leaders in providing industrial gases to the technology and healthcare sectors, and it’s benefited from fast growth in these segments.