One of the sectors that is often overlooked by investors is the industrial gases sector. Industrial gases are a group of gases that are used in many industries such as metal, polymer, food, medical, oil refining industries. Like utilities and consumer staples, this sector can be considered as a stable and relatively safe industry to invest in during all market conditions.
Some of the industrial gases are Acetylene, Hydrogen, Oxygen, Nitrogen, Carbon dioxide and Argon. These gases can be transported in either compressed, liquid, or solid forms. Acetylene is used for cutting steel and for welding. Hydrogen is used in the edible fat and oil industries where it is used to hydrogenate vegetable oils to make margarine. Carbon dioxide is used to carbonate soft drinks, beers, etc. It is also used to remove caffeine from coffee beans to make decaffeinated coffee. Nitrogen is used for cooling many mechanical equipments that needs to be extremely cold in the food industry.In addition to the medical industry, Oxygen is used in the steel industry to remove impurities in the steel. Since Argon is highly unreactive it is used to protect very hot metal such as molten metal.
A comparison of the four major players in the industrial gases industry is shown below:
|S.No.||Company||Ticker||Country||2009 Revenues||Current Dividend Yield|
|2||Air Products and Chemicals||APD||USA||$9.0 B||2.26%|
|4||Air Liquide||AIQUY.PK||France||EUR 12.0 B||2.12%|
1. Radnor, PA-based Airgas (ARG) is the largest distributor of industrial, medical, and specialty gases and hardgoods, such as welding equipment and supplies in the U.S. It is also one of the largest U.S. distributors of safety products, the largest U.S. producer of nitrous oxide and dry ice and a leading distributor of process chemicals, refrigerants and ammonia products. Over the years, Airgas has built the largest national distribution network in the packaged gas industry with about 1,100 locations. As the economy recovered from the recession, Airgas saw strong performance in the second quarter. Second quarter sales came in at $1.06 billion and the company raised full-year EPS guidance to $3.22 to $3.32 from $3.15 to $3.30.
Currently, rival Air Products is involved in a hostile bid to acquire Airgas. The latest offer of $65.50 a share has been dismissed by Airgas a “grossly inadequate”. This week Airgas gained a small victory against Air Products when a court rejected Air Product’s attempt to force it to hold its next shareholder meeting early. Airgas investors have done very well in the long term. A $1,000 investment in 1986 when the company went public would be worth $61,209.19 with dividends reinvested for a return over 6,020%. Airgas’s stock closed at $61.52 Friday.
2. Air Products and Chemicals (APD) is also based in Pennsylvania. Air Products pioneered the concept of “on-site” producing and selling industrial gases, primarily oxygen which involved building oxygen-producing facilities closer to large-volume customers and piping them directly to the point of use- thereby reducing distribution costs significantly. Today the company operates in over 40 countries and had fiscal 2010 sales of $9.0 billion. In the healthcare segment, Air Products is a market leader in Spain, Portugal, the United Kingdom and Mexico.
3. Founded in 1907, Danbury,CT-based Praxair (PX) has operations in more than 30 countries. In 2009 sales totaled $9.0 billion. Praxair’s primary products are atmospheric gases such as oxygen, nitrogen, argon and rare gases & specialty gases such as carbon dioxide, helium, hydrogen, semiconductor process gases, and acetylene.The company’s name is derived from the Greek word “praxis”, or practical application, and “air”, its primary raw material. In 3Q, 2010, total sales were $2.5 billion, 11% above prior-year quarter. Sales in Asia and Latin America grew 24% and 16% from the prior-year quarter respectively. A $10K investment in PX on Jan 1, 2000 would have now grown to $36,615 for a return of 266% with dividends reinvested.
4. Air Liquide (OTCPK:AIQUY) is Paris, France-based firm with operations in over 75 countries. Air Liquide is a member of the CAC 40 and the Euro STOXX 50 indices. Oxygen, nitrogen, hydrogen and rare gases are at the core of the company’s activities since its founding in 1902. In 2009, the company’s revenues amounted to €12 billion, of which almost 80% were earned outside of France. Q3, 2010 sales were €3.4 billion up 15% from the same quarter last year.
Disclosure: No positions