Air Liquide Stock: Set For The Long Run (OTCMKTS:AIQUF)

Since March 2022, we have been covering Air Liquide (OTCPK: AIQUF, OTCPK: AIQUY) providing a note based on Mare Evidence Lab’s long-term thesis and a follow-up on the company’s three-month numbers.

Up to date, we received some pushback from our readers. Our internal team is more than willing to provide more content. So, let’s go deeper into the analysis, and here below the negative list collected:

1. More downside risk than upside;
2. Lack of confidence in ESG funds;
3. CO2 emissions compare to APD;
4. Lower IRR on new CAPEX;
5. Higher competitive pressure over the long run.

Air Liquide’s new advance strategic plan was confirmed. Their chemistry rhymes with visibility and regularity for financiers, making it possible to project a raise on its profitability ambitions. The annual growth in turnover (6 to 7% against 4.5% for the pre-pandemic period 2016-2019) is intended to be robust, and above all, this acceleration won’t prevent its profitability from being triggered, and the company will also be able to increase industrial investments. Operating margin should rise further, thanks to productivity and savings efforts, but more importantly, thanks to the strong company’s pricing power and to the new dynamic pricing policy. This will also be supported by lower costs of carbon-hydrogen production. In times of energy and inflationary shocks, we see Air Liquide with more upside than downside. The company’s track record is impressive, and the Wall Street consensus is not given enough credit to the industrial gas player.

Regarding the second point, we currently see more ESG investors willing to go on board. Air Liquide is well-positioned to be a “doing good while doing well” ESG company with no greenwashing label. Once again, we think that there is a negative sentiment that needs to cool down.

Points 4) and 5) follow the same conclusion. We have much covered the company’s CAPEX plan and superb order backlog. The REPowerEU plan and the EU chip act are going to be positive catalysts over the long term that will sustain return. There are very high entry barriers and decarbonization will be back not only by hydrogen activities but also by new solutions to lower down emissions and capture them.

Hydrogen Mobility Opportunity

Industrial vehicle manufacturers are cooperating with Air Liquide to release the first hydrogen truck prototypes in Europe. In its new sustainable mobility strategy, the European Commission aims to put 60,000 hydrogen-powered trucks on the road by 2030. The main truck manufacturers recently pledged to phase out fossil fuels by 2040. The French group has announced that it has signed a memorandum of understanding with CaetanoBus and Toyota Motor Europe to provide integrated offers for hydrogen mobility and to “contribute to the decarbonization of the transport industry”. The industrial gas supplier specifies that this project includes the development of infrastructure and vehicle fleets aimed at accelerating the deployment of hydrogen, for both light and heavy vehicles. If the American versions are already rolling on open roads in California, the European prototypes are still tested on the track within the common industrial site. Alongside this EU partnership, Air Liquide’s American subsidiary called Airgas has just signed an agreement with Hyzon Motors to test two hydrogen trucks.

Conclusion

Half-year results (scheduled for the 28 of July) may support our positive view, and the recent partnerships are again affirmative catalysts to our long-term thesis. With the latest ADVANCE strategic plan for 2025, we reiterate our target price of €190. We note that the company is affected by COGS volatility due to Russian gas, but it reached a stock price level that is very interesting. 20% P/E discount compared to Linde and 12% discount with APD is not justified.