Saturday 19 October 2013

Analysis of Linde

a German gas and engineering company

Company: Linde

Business: A German gases and engineering company that are divided into three divisions: Industrial Gases & Healthcare (production and distribution of all kind of gases ranging from oxygen to acetylene and argon), Engineering (engineer and construct industrial plants for gas extraction) as well as Gist (contract logistics and supply chain not only of gas products but also refrigerated and "normal").

Active: They are active world wide and are currently present in over 100 countries.

P/E: 21.0

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Linde is far too high with 21.0 and the P/B is not much better with 1.9 which means that Graham would not have liked to invest in this company. The earnings to sales are pretty good with 8% but the ROE is only so, so with 9.2%. The ratio of the book to debt is ok with 0.7. In the last five years they have had a yearly growth of 3.8% which is acceptable and this then leads to a motivated P/E of around 13 to 16 so today Linde is a bit overvalued by the market. They spend a very small amount on research since it is only 8% of their earnings so there they could improve a little. They pay a low dividend of 1.9% which represents as much as 40% of their earnings. It is not that high that they will not be able to keep it up but a bad year or two and they might be forced to decrease the dividend payment.

Conclusion: A solid German company that today is overvalued on the market and therefore neither Graham or I find it of interest to invest in at the moment. It is of a concern that they spend so little on research since in the most boring and slowest industries are sometimes the places where you can make the biggest discoveries for optimization or new development. With a drop in price I would very much like to step in as a shareholder but then the P/E must be around 10.

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