Morningstar | Air Liquide's 3Q Results in Line With Our Expectations; We Maintain FVE
We are maintaining our EUR 108 fair value estimate for narrow-moat Air Liquide after the company announced third-quarter sales that were roughly in line with our expectations.Air Liquide increased revenue across all segments and geographic zones. Third-quarter group revenue increased 6% on a comparable basis to EUR 5.3 billion, driven by 5.2% revenue growth in gas and services, which constitutes over 95% of the company’s total revenue. Electronics revenue grew 8.5%, benefiting from three new investments in China and Singapore. The launch of a large air separation unit in South Africa at the end of 2017 contributed to 16% year-over-year revenue growth in the Middle East and Africa zone. Air Liquide also announced the acquisition of hydrogen and purification units in Kazakhstan, which marks the company’s entry into the country.
Cumulative operating efficiency savings from the Airgas merger reached $273 million, and management now expects to hit the $300 million target at the beginning of 2019, a full year ahead of schedule. We are encouraged by the strong cost and revenue synergies from the Airgas merger, but this announcement did not move the needle on our fair value estimate as our prior valuation already reflected relatively optimistic synergy projections. We still forecast a 300-basis-point operating margin expansion by 2019.
L'Air Liquide is engaged in the market of gases for industry, health and the environment. Oxygen, nitrogen, hydrogen, and rare gases make up Co.'s core activities. Co. structures its activities in three segments: Gas and Services, Engineering and Technology, and Other activities. The Gas and Services segment comprises four business lines: Industrial Merchant, Large Industries, Healthcare and Electronics; Engineering and Technology designs, develops and builds industrial gas production plants for Co. and third parties; and the Other Activities segment develops welding and cutting edge technologies, and markets deep-sea diving and swimming equipment to professionals and privates individuals.
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