Surely you remember: In the spring, the German-American gas specialist Linde left the local leading index Dax and caused a sensation. Now the traditional company is again in the focus of the stock exchange.

This is how Linde’s business was in Q3 2023: A few days ago, as part of the quarterly presentation, Linde once again revised its earnings forecast upwards. The figures for the third quarter of 2023 were mixed. In the three months to the end of September, the revenue of the world’s largest industrial gas company fell by 7 percent to 8.16 billion dollars due to exchange rate effects. At the same time, sales of Linde products fell by 2 percent.

Background: Linde’s industrial gases are used in many industries. The gases help, among other things, to freeze, cool and package food, to coat aircraft turbines, to extract metals in the mining process, in paper production, in medicine for the supply of oxygen and anaesthesia, and in the production of electronic products such as flat screens.

In the third quarter, sales in the electronics and metals sectors fell – mainly due to slightly weaker demand due to economic problems. On the other hand, sales in the medical and food sector rose. Linde reported the greatest drop in sales (-4 %) for the EMEA region (Europe, Middle East and Africa), while sales volume in America fell only 2 percent and in Asia-Pacific remained stable.

Linde shines with strong profitability: Nevertheless, despite the burden factors, the company was highly profitable. The adjusted net profit rose in Q3 by 15 percent to 1.57 billion dollars. This not only exceeded Linde’s own forecast, but also the forecast of most analysts. The gas specialist has benefited here from two factors.

First: Between July and the end of September, Linde was able to set significantly higher prices – in the EMEA region, the price level rose by 6 and in America by 5 percent. Second: In recent months, the traditional company has worked hard on its own cost efficiency. Revenue costs fell compared to the previous year’s period by 18.3 percent to 4.31 billion dollars. The adjusted operating margin rose compared to Q2 2022 by 5.5 percentage points to 28.3 percent. Linde has thus improved its operating profitability in every quarter of the current year.

Accordingly, the company is optimistic about the future. Management has now increased the EPS forecast to a range of 14.00 to 14.10 dollars. Previously, Linde had predicted EPS of 13.80 to 14.00 dollars. The gas giant has thus already adjusted its earnings forecast upwards for the third time this year.

Fantasy is there: energy transition and green hydrogen: Significant growth potential is seen by the management in the field of energy transition. Customers of Linde can, for example, increase their operational efficiency by using specialized industrial gases – for example by reducing the consumption of natural gas. But the biggest fantasy driver of the Linde share is green hydrogen.

For many years, the company has been one of the world’s most important hydrogen players. Linde has the know-how to produce the energy carrier and an extensive network of pipelines, terminals and filling stations. So far, the company has mainly produced hydrogen from natural gas (gray and blue hydrogen). In the future, however, Linde wants to focus on green hydrogen, which is produced with eco-electricity and is supposed to bring considerable climate benefits.

In Germany, Linde is promoting, among other things, a production site for green hydrogen in Leuna – in cooperation with the electrolysis specialist ITM Power. There are also other projects in Europe, the Middle East (e.g. Qatar) and the Far East (e.g. Taiwan and China).

Linde Share: My conclusion for you: Linde has once again managed to deliver a solid set of numbers despite the serious macroeconomic problems. The fact that management has now increased the earnings forecast once again illustrates the strength of this stock.

The following shows the development of profit and revenue of Linde back to 2008:

It is clearly visible the very stable profit margin of the company – as well as the revenue and earnings jumps of the last years. The reason for this is relatively simple: Linde is one of very few internationally relevant gas companies. The industry is thus heavily dependent on its products. This gives Linde strong demand and not least a lucrative pricing power. And it is this strength that the company wants to enhance in the course of energy transition – especially through green hydrogen.

Of course, the Linde share is not exactly the cheapest title on the capital market. Due to the higher earnings forecast, the price-earnings ratio (P/E) should be around 30 points in the current year. If one assumes further earnings increases for the coming years, the P/E should decrease taking into account the current share price.

The same applies to the dividend yield, which is currently around 1.4 percent for the full year 2023. Linde has steadily increased its payouts in the last decades and is likely to continue this strategy. In addition, there is a new share buyback program, which could boost the Linde share price.

In my opinion, the Linde share is a solid hedging pick. Accordingly, you should not expect any short-term euphoria surges with this title, but rather steady increasing returns in the long term.