Wednesday, 18 November 2015

What to think about Air Liquide's big deal

As I observed back in July:

'I have long regarded Air Liquide as your 'if you need to own an industrial Continental European listed stock then this is the one' name.  Today's numbers did nothing to change my mind.  Solid.

If you were going to pick a level?  Below Euro110 to buy some (more).  Yes, not cheap at teens EV/ebit, 2%/change yield but quality'

Last yesterday the company announced the proposed purchase of its US industrial gases peer Airgas.

Does this change anything?  Having listened to the deal conference call this morning I don't think so. Here are a few thoughts:

You can see the logic in terms of augmenting the market position for the Air Liquide group in the US and reinforcing the global position. 

Does make the company more US centred turnover-wise. 

‘Largest industrial gas market world wide…fastest growing amongst advanced economies’

Ultimately adds 25% to sales, 19% to operating income.  So need to achieve synergies etc. 

Financing looks like a bank loan etc. now and ultimately tapping the fixed income/equity markets. 

Believe will be accretive in year one.  Metrics not terrible even pre-synergies.  Certainly full but cannot fault general logic.   

From the Q&A –

2-5% first year accretion but depends on precise outcomes (cost of financing etc.)

‘very early…above the WACC for the group’

Airgas headwinds in the last year ‘the same as other firms’ – industrial slowdown etc.

Regulators on geographic profile – believe have planned for this drawing on historic precedent.  Noted gas cylinder business very local in orientation. 

Cash generation – said ran numbers on this deal carefully to ensure can invest in business, pay dividends and pay down debt

Overall – not surprised to see the shares down 5%+ given likelihood of an equity issue but you cannot really fault the industrial logic.  Very high quality but I have noted above a Euro120 pretty full today.  Always looking to buy this one below Euro110, that remains the case. 

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