*Permission to use quotations neither sought nor obtained
*Permission to use quotations neither sought nor obtained
We remain constructive on APD due to the strength of the base business, long-term earnings potential, and risk reduction initiatives.
We rate shares of APD as Buy due to 1. attractive valuation, 2. strong business model with stable volumes and sticky pricing, and 3. significant growth potential from clean energy projects.*
…if APD can generate the growth it has promised with its clean hydrogen strategy, growth tends to get rewarded over time, which should boost shareholder value. We believe APD has been very clear and consistent in its strategy…*
…the issue longer-term is that a return to a traditional industrial gas model positions Air Products to once again compete directly with Linde (and Air Liquide)…Simply put, Air Products competing straight up versus Linde is not a strategy for long-term success, in our view.
If successful, we believe the Louisiana project could earn returns of 20%-plus, or nearly 2x the returns of a traditional industrial gas project.*
On the earnings call, Chairman & CEO Seifi Ghasemi announced the company ("with good governance in mind") is bringing in a potential CEO successor as President and member of the board […] We think this development was positive on two fronts:
1. it helped contextualize the abrupt COO departure two weeks ago (Dr. Serhan was previously viewed as the leading potential successor candidate; we think investors believe someone of those above qualities would be an upgrade) +
2. coupled with other events this quarter (green hydrogen off-take; cash raise via non-core LNG biz sale), recent behavior is being viewed holistically as more shareholder-friendly / heeding to key investor concerns (succession, project risk, balance sheet).Following the recent green hydrogen off-take announcement with TotalEnergies, CEO Ghasemi indicated a significant uptick in interest from other potential customers, strong demand for green hydrogen, and alluded to healthy returns on these projects. This is viewed by many as validation of APD's strategy, with many more high-return offtakes to come shortly.*
…in response to investor concerns over who and at what price Air Products would sell its blue and green hydrogen to, management unveiled a more disciplined clean energy investment strategy.*
Air Products continues to expand its margins in the Americas and EMEA despite slower revenue growth stemming from muted demand. APD may outpace industry growth down the road given its initiatives in the renewable energy space.*
With the signing of a 15-year green hydrogen contract with TotalEnergies, Air Products has achieved a significant milestone in its energy transition strategy. We believe the signing of this large green hydrogen contract with a leading energy company is an important step in validating Air Products energy transition strategy…Air Products has addressed investors primary concern in relation to the company's $15B hydrogen / energy transition backlog.*
We view today's announcement of a LT contract between APD and TotalEnergies as a positive step in securing major customers for the buildout of APD's green hydrogen strategy.*
We think the Total contract signing re-values Air Products upward. Air Products’ NEOM project is meaningfully de-risked by the signing – though the plant still has to be constructed on time and on budget… it may be the case that Air Products trades at parity or even at a premium valuation to Linde over time, should Air Products successfully contract its NEOM and Louisiana volumes.*
