Arranging FTSE 100 companies by their market capitalisations, AstraZeneca comes out on top with a £158.5bn valuation. As such, investors can be forgiven for thinking the pharma titan takes the crown as Britain’s largest firm.
But there’s one UK-based company, not listed in the FTSE 100, that has a marginally higher valuation of £159.6bn. It’s the world’s largest industrial gas supplier, Linde (NASDAQ:LIN). Although legally domiciled in Ireland, the group’s principal executive office is in Woking, just a stone’s throw from London.
So, what’s this multinational’s business model? And should investors consider buying its shares today?
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Gas giant
Linde produces and distributes an extensive range of industrial gases, including oxygen, nitrogen, argon, hydrogen, carbon dioxide, and helium. It also supplies ancillary products, such as mobile gas cylinders, safety equipment, and freezers.
The company’s customers are diversified across multiple sectors. From engineering to healthcare to electronics, the firm’s gases have countless applications. What’s more, its operations span over 100 countries worldwide.
It’s fair to say these attributes make Linde a high-quality defensive stock, resistant to fluctuations in market cycles. That said, it’s not completely immune to global economic downturns since falling demand from the manufacturing industry can still hurt the bottom line.
Soaring share price
In the past five years, the FTSE 100 has advanced 43%, but the Linde share price has delivered a much stronger return of 138%. Adding to its investment appeal, the company has a 28-year history of consistent dividend growth. The stock currently yields 1.34%.
One thing I really like about Linde shares is the group’s competitive advantage. Its leading position in the market, immense distribution infrastructure, and heavy investment in R&D mean the group benefits from economies of scale that smaller rivals can’t match. A 2018 merger with Praxair helped to widen the company’s already substantial moat.
There are also attractive growth opportunities for the 145-year-old firm. Hydrogen‘s a good example. Due to its low-carbon qualities, it’s a key element in the global effort to achieve net-zero emissions. With over 200 hydrogen refuelling stations to its name, Linde has the biggest installed base in the world.
A sticking point is the valuation. Trading at a price-to-earnings (P/E) ratio of 33.1 and a forward P/E of 27.3, it’s not a cheap stock. By contrast, the average multiple for FTSE 100 shares is 16.3. Consequently, there’s pressure on Linde to perform and little room for error. Any disappointing results could deal a nasty blow to the share price.
Fortunately, earnings for FY24 gave shareholders some reasons to be cheerful. A 7% uptick in adjusted operating profit to $9.7bn and a 9% increase in earnings-per-share (EPS) to $15.51 were notable successes. However, sales were flat compared to the prior year at $33bn. It’s worth monitoring the next results closely. I wouldn’t want to see that figure go into reverse gear.
A stock to consider?
Overall, I think Linde shares are well worth considering as a portfolio addition. The company is often overlooked by UK investors who focus on the FTSE 100 without realising there’s a British titan beyond the ranks of the index.
The high valuation is an unfortunate drawback, but sometimes it’s worth thinking about paying a premium for quality.
