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Gas producers are the winners of the H2 ramp-up

By Sven Jösting

April 16, 2024

Image titel: Handshake between Seifi Ghasemi (CEO of Air Products) and Germany economy minister Robert Habeck in November 2022

Sources: Air Products

Gas producers are the winners of the H2 ramp-up

The major international gas companies such as Linde, Air Liquide and Air Products have always been active in the field of hydrogen, but so far with the industrially demanded “gray” hydrogen based on natural gas. In addition, the hydrogen molecule is essential for many derivatives and chemical compounds. The trend is now increasingly moving towards green, so regeneratively produced, hydrogen. And also and directly here the three companies mentioned are positioning themselves, by establishing very large electrolysis production capacities worldwide and entering into strategic alliances in countries that are ideal for it, because the conditions there (high solar radiation, wind power and hydropower, and water, especially seawater) could not be more perfect.

The main focus there is on blue hydrogen, which can be produced cost-effectively by reforming natural gas and which, through storage (CCS & CCUS) but also through industrial use of carbon, has a lower carbon footprint. On top of this is the very weighty argument that they can additionally benefit from various subsidy programs, be it in the EU or in the USA with the Inflation Reduction Act.

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On the stock market, some of these bright prospects have already been reflected in the share price performance and valuation, but there are differences that could be made use of, since Air Products & Chemicals, in contrast to Air Liquide and Linde, has not yet really participated in the run. Hence the recommendation to bet on the latecomer:

Company                   Valuation                             Turnover                 PE ratio 24         Dividend yield
Linde                         185 billion USD                         36 billion USD           37                    0.9 percent
Air Liquide                   99 billion USD                         33 billion USD            33                   1.8 percent
Air Products                52 billion USD                         12,7 billion USD         24                    3 percent

Air Products & Chemicals

The company is relying heavily on hydrogen and ammonia, to serve long-haul traffic with the latter. In Hamburg, it has joined forces with the globally active petroleum and chemical trading company Mabanaft (subsidiary of the Marquardt & Bahls Group, which operates a global storage facility for all types of petroleum products, including kerosene for aircraft, and its own network of refueling stations) and is planning an ammonia processing plant (cracking) with an investment of over one billion euros in the port Hamburger Hafen. But first it’ll entail blue hydrogen, which is to find its way to Europe, and from countries such as Saudi Arabia, where they are working together on the project Neom Green Hydrogen and where Air Products & Chemicals was able to land an order volume of 6.7 billion USD.

A look at the charts shows that Air Products & Chemicals is not far from last year’s lows, whereas Linde and Air Liquide have reached new highs. As a group, these shares will continue on their path, but, as a latecomer, the share of Air Products & Chemicals appears the most favorably valued. The quarterly dividend was recently increased to 1.77 USD per share. First price target: 300 USD.

Disclaimer

Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting, written March 15th, 2024

Kategorien: Germany
:Schlagworte

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