Morningstar | Exceptional Global Conditions for Narrow-Moat Air Liquide Continue in 2Q; Maintain FVE
We do not expect to materially change our EUR 108 fair value estimate for narrow-moat Air Liquide following a first-half sales update that reflected 5% growth in gas and services revenue and top-line growth in every geographic region.First-half group revenue increased 6% on a comparable basis to EUR 10.2 billion, excluding negative currency translation of 7 percentage points and energy cost pass-throughs. Gas and services revenue, constituting more than 95% of the company's total revenue, grew more than 12% in developing economies and experienced single-digit percentage growth in healthcare sales in developed nations. Home healthcare profited from an increase in the number of diabetic patients and patients receiving treatment for sleep apnea, and we believe these trends will continue over the long term. Large industries sales grew more than 5% thanks to higher volume, including the launch of a large air gas production unit in South Africa and four new biogas production units in the United States and Europe.
Operating efficiency savings reached EUR 174 million, ahead of the EUR 300 million annual target management laid out in its strategic plan. Fueled by the operating efficiencies, operating income for the group was EUR 1.6 billion, and operating margins stood at 16%. Management reiterated 2018 guidance for net profit growth from the prior-year period. In addition, management expects to achieve EUR 300 million in Airgas synergies by the first half of 2019, one year ahead of schedule, and we forecast operating margins to expand roughly 300 basis points to 19% by 2019.
Net income topped EUR 1 billion in the first half of 2018, a 20% year-over-year increase when excluding currency losses. Furthermore, the investment backlog was reported at EUR 2.3 billion as of June 30, which should add EUR 900 million in sales after ramp-up completes.
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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