EFTA01385526.pdf

> Energy, Materials & Industrials Deutsche Bank ED Linde — Tim Jones, BUY, close €186.1, €227 tgt, 22% upside. ■ Key driver #1: improving gas industry fundamentals from cost Linde-Praxair combination a clear market leader efficiencies, investment discipline, consolidation and end-market stabilisation. Capex to sales has fallen from c14% in 2012/13 to c12% in Others 2016, and consolidation should drive price discipline and margin expansion. 18% Air Liquide TNS 30% ■ Key driver #2: macro tailwinds. Improvements in Europe and Asia (c60% 4% of Linde Gas), and continued strength in the US, should provide support to a later-cycle business from 2018 onwards. Industry growth should improve Air Products from 2015-16's 2%. 11% ■ Key driver #3: Praxair merger will create a global leader in the gas industry. Praxan Linde Our analysis of the combined firm suggests large synergies ($1.2bn — over 13% 24% 20% of pro-forma EBIT - of which $1bn is cost savings and $200m capex Source: Deutsche Bank estimates. Spirdus Consulting. TNS • Taiyo Nippon Sanyo. Data includes share of sales from associate savings). pailipipations and JVs. Note: Air Liquide includes Airgas acquisition - The key logic is diversification (geographical and end-user), given complementary regional and end-market exposures. Linde-Praxair price target bridge ■ Anti-trust risks should be manageable, with divestments of $2.5-3bn. 25 300 Demand for these assets is likely high. 245 10 20 ti 15 15 ■ We forecast E4.3bn net income in 2020. implying a fair value of 35 MIS 180 €245/share using peer multiples. We discount this back, implying our €227 target. ■ Trades on 21.6x 2018E P/E, in line with peers. ■ Catalysts: greater visibility on merger execution and timing Current Cost Berating to Price Mid term Lower Relating to Top line Blue sky Related DB Research: share pnce synergies industry discipline target price taxes industry synergies scenario Linde - Gases growth accelerating. Still on track to E245. BUY (Jones) average leader Pan European Chemicals: 2018 Outlook: A "super" sector Wiriest Source: Deutsche Bank. Company Data Deutsche Bank Research• European Equity Focus —January 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086812 CONFIDENTIAL SDNY_GM_00232996 EFTA01385526