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Air Products and Chemicals Is the World's Leading Helium Supplier
Posted by: P.I.A. (IP Logged)
Date: October 10, 2013 04:17PM
Helium is a commodity. While many of us would identify it with dirigibles, its usage is also vital for things as varied as supercomputers and medical equipment. Our Federal Helium Reserve, a division of the Bureau of Land Management, is responsible for 40% of domestic, and 30% of global consumption. The reserve would have been shut down except for last-minute passage of the Helium Stewardship Act of 2013 to keep it open. The federal government is now required to sell its stockpiles by Sept. 20, 2014. While many identify Air Products and Chemicals (APD) with Bill Ackman and growing dividends, its status as a supplier of the rare gas also deserves attention.
An Aug. 2nd piece presented by The Washington Post provides a month-old overview of the past situation. A subsequent article in The Economist magazine, published on Sept. 28, reiterates the story and gives Oct. 7 [size=11px; line-height: 13px] [/size]as the date for the “Helium cliff.”
There are several companies that purvey gasses, including helium, which is to remain in demand by all available accounts. They include Praxair (PX), Airgas Inc. (ARG), Air Liquide (AIQUY) and Air Products. However, the latter corporation is known as “the world’s largest producer and supplier of helium.” Indeed, it has a complex, global network as shown in the following graphic of its distribution and production system:
In addition to production facilities in Texas and Oklahoma, where the Reserve lies, the company also has locations in La Barge, Wy., and Arzew, Algeria. For anyone considering a stock that is poised to gain from any rise in prices of the rare gas, APD needs consideration. None of the others mentioned have helium operations that are remotely as extensive. Walter Nelson is the director of helium sourcing at Air Products. His company has recently issued a positive statement pertaining to aversion of the “cliff.”
Again, there are at least two things that immediately and outwardly define APD,
(1) Ackman has a position worth roughly $2 billion.
(2) It pays dividends and has a track record of increasing them.
Ackman is known as an activist investor. His presence should be beneficial to shareholders, unless he suddenly unwinds his stock. His holding has only been known since June 30, and he tends to be a long term presence, so it is not likely for him to sell without substantial publicity preceding it. In fact, his fund Pershing Square “looks forward to a successful long-term partnership.” Implications include 9.8% of shares that are not for sale and added oversight on corporate governance.
Ackman’s investment appears timely. Chairman, President and CEO John E. McGlade, who has been with the company since 1976, is retiring in 2014 and a search is underway to replace him. After the CEO, many would say the most important position is CFO. Senior Vice President and Chief Financial Officer M. Scott Crocco is almost as tenured as his boss, having been with the corporation since 1990, the same year he earned an MBA degree.
New directors are being added to the board of directors. Among them is Pershing Square Advisory Board Member Matt Paul. Per a Sept. 25 Letter of Agreement, Pershing Square has other significant input. The fund is entitled to designate successors for directors Paul, or Seifi Ghasemi who will stand for election at the 2015 meeting. It may also meet with new candidates for CEO. Regarding virtually all other matters, it has nearly 10% of shares and equivalent voting power.
The growth of dividends also works in the company’s favor. The stock currently yields 2.84%. Remarkably, the dividend has been increased each year for the past 30 years, so investors can sensibly seek income that rises over the long term. Further, a dividend is one of the best attributes a stock can have. It provides cash to shareholders and also serves to cushion a sell-off because the yield increases with a lower stock price. The stock has recently gone ex-dividend on Sept. 27, so another payment is approximately three months away. APD’s payout ratio is very close to 50%, indicating that it is sustainable.
The nearest event that should have a significant effect on the stock price is the fourth quarter earnings report scheduled for before the market opens on Oct. 29, which is to be followed by a 10 a.m. teleconference. The stock is now close to its 52-week high. While some may choose to buy now, or continue owning shares, I am looking forward to better information. There is also the chance of acquiring shares at a better price after the report.
To summarize, Air Products has at least three known attributes that may be viewed as favorable for its future. An activist presence is helping to shape corporate governance. The stock also has a solid history of paying dividends and increasing them. Lastly, as a purveyor of an important product, it currently has no known and formidable competition.
Stocks Discussed: APD, ARG, PX, AIQUY,