Monday 16 June 2014

Analysis of Linde 2014

logo, Linde, a German gas & engineering company

Company: Linde

Business: A German gas & engineering company. It is divided into three divisions: Gases (production and distribution of gases ranging from oxygen to acetylene and argon), Engineering (engineer and construction of industrial plants for gas extraction) as well as Gist (logistics and supply of gas products).

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

P/E: 22.0

Here you can find the previous analysis of Linde.

Contrarian values of P/E, P/B, ROE as well as dividend for Linde

The P/E is still too high for me with 22.0 and have only moved slightly higher compared to last analysis mainly due to increased earnings. The P/B is also a bot too high with 2.1 which gives us a no signal from Graham. The earnings sales is same as last year with 8% which is ok and ROE is in a similar region with 9.7% which is not a very good value. The book to debt ratio is at 0.7 which is also ok. In the last six years they have had a yearly growth rate of 4.7% which is great and this then means that we end up with a motivated P/E of 14 to 18 which means that Linde today is slightly overvalued by the market. The spend some money on research but only 7% of their earnings which I find very low. The pay a dividend but it is not larger than 1.9% so it could have been better but on the other hand it represents 42% of the earnings which means that they can increase it in the future with remained or increased earnings.

Conclusion: Graham says no and so do I. A great company but it is currently slightly overvalued to be of any interest to invest in. In the last analysis I wrote if it dropped down to a P/E of around 10 then it would be of interest to step in but that is simply too low and somewhere in the motivated P/E range would be a good starting point to step in as a shareholder.

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