Linde plc (LIN)

Total return at 5 years: -0.9%/year = -2.6% appreciation + 1.7% dividend. The target price ($428) is ex-dividend; the $39 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $380 · Multiples $378) is below the market price ($487).

Today — expensive, no margin of safety: at $487 trades ~29.0% above its value discounted to today (~$378); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$239.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($487) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (10.3%/year) above our base case (5.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$11.4 bn of owner earnings in year 5 (vs ~$8.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad operativa (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Linde is valued on EV/EBIT over operating income, which is the metric of the industrial gases archetype: it is a capital-intensive business, with dedicated fixed assets on the customer's site and annual investment that comfortably exceeds depreciation, so a metric that does not charge for invested capital would give away precisely what defines the economics of the business. The level of the metric is pre-interest, so the model works with the real cash and debt from the balance sheet (cash US$4,898 million, gross debt US$23,152 million at 30-Jun-2026) and the enterprise-value-to-equity bridge subtracts net debt once only. Year 0 is the TTM ended 30-Jun-2026: revenue US$35,449 million, operating income US$9,378 million (a 26.5% margin), operating flow US$10,489 million and investment in fixed assets US$5,514 million. The year-1 path is anchored to the current guidance in the release of 31 July 2026: the company expects adjusted earnings per share of US$17.70 to US$17.90 for 2026, an increase of 8% to 9%, with capex of US$5,500 to US$6,000 million. On revenue, the quarter reported underlying progress of 4% (2% price and 2% volume) plus 1% from acquisitions, with currency contributing 2% that is not extrapolated. From that comes a year 1 of 5.0% in the base case, within the band of the recent trajectory, decaying smoothly to 4.0% by year 5 — the durable rate of a business whose growth is composed of contractually indexed price, project start-ups from the contracted backlog and bolt-on acquisitions. The operating margin expands by just 19 basis points a year to 27.4%: the company has been gaining price and productivity, but the release itself notes that cost inflation offset much of that gain in the quarter, so aggressive expansion is not credited in advance. Maintenance capex is taken at 70% of the total, consistent with depreciation of US$3,825 million against investment of US$5,514 million: the excess buys the contracted growth of the on-site gas sales backlog, with revenue that is indeed growing. Cash stays stable because the return of capital to shareholders (dividends US$2,878 million plus net buybacks US$4,057 million) exceeds free cash flow for the period, so the surplus is imputed through a single channel: the reduction in the share count. The observed net reduction was around 2.1% a year over the last three fiscal years (504.0 to 472.2 million diluted shares), and the path is modeled trimmed to 1.8% a year for the demanding entry multiple (a price-aware adjustment).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $428 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $487, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $428 in 5 years plus $39 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $378. Against the current market price ($487), the margin of safety is -29.0% (trades above the maximum → a premium is paid) and the total return at that price would be -0.9% annually.

• Entry multiple. The price pays 26×, well above the archetype's 14-to-19-times exit band.
• Estimated total return. -1% annually over five years, dividend included, against the 10% bar for average returns.
• Dividend yield. 1.3% on today's price, with a current annualized rate of US$6.40 that is 6.7% above the US$6.00 paid in 2025 (the prior increase, from US$5.56 to US$6.00, had been 8%).
• Margin of safety. No margin of safety: the price already discounts a demanding scenario. Requiring 15% annually would call for a discount of -104%.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (96%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Predictable cash generation. Operating cash flow of US$10,489 million in the trailing twelve months, growing in each of the last three fiscal years (2023, 2024, and 2025).
• Return on capital. 12.7% on an invested capital base carrying the goodwill from the 2018 merger; on operating capital it is far higher.
• Reinvestment runway. Contracted gas sale backlog of US$8.1 billion and project backlog of US$11.0 billion.
• Earnings-to-cash conversion. Free cash flow falls short of net income because growth investment exceeds depreciation.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

An industrial gas producer's revenue is volume times price, with price indexed by contract in the largest segment and energy cost passed through to the customer. The leading indicator is the contracted gas sale backlog, which reached a record US$8.1 billion (within an US$11.0 billion project backlog the release does not break down) in the second quarter of 2026: it is revenue already signed that will appear in the gases income statement as plants start up. Separately, the US$3.0 billion third-party equipment sale backlog corresponds to the engineering segment. Fixed-asset investment tracks the project backlog and that is why it comfortably exceeds depreciation.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue growth. 3% in 2025 and 6.6% in the trailing twelve months aided by currency; the last quarter's underlying growth was 4%.
• Volume contribution. Flat volume in 2025, with declines in Europe and Asia-Pacific, and a 2% recovery in the second quarter of 2026.
• Contracted revenue ahead. The gas sale backlog reached a record, which anchors the path in contracts rather than in trend.
• Growth from acquisitions. Acquisitions contributed 1 point of 2025 growth: a complement, not a driver.

• Revenue recurrence and predictability. On-site customer contracts of 10-20 years with minimum purchase commitments and price indexation.
• Differentiated or benchmark product. The gas is a commodity, but supply reliability and purity in electronics and healthcare differentiate the supplier.
• Pricing power. Price contributed 2 points of 2025 growth with flat volume, and the clauses pass through energy cost.
• Operating leverage. High fixed costs from the installed asset base: margin expands with volume and compresses when the base falls.
• Behavior in a downturn. The minimum purchase commitment cushions the decline, but exposure to chemicals, energy, and metals is real.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.4x
• ✓Interest coverage (EBIT / interest)36.8x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 96% of ROIC
• !Value creation (ROIC − 10% bar)+3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.4x
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Gross debt of US$23,152 million against equity of US$39,081 million and cash of US$4,898 million.
• Interest coverage. Net interest expense of US$255 million against operating income of US$9,378 million.
• Funding of shareholder return. Dividends and buybacks together exceed free cash flow; the difference is covered with net borrowing.
• Accounting impairment risk. Goodwill and indefinite-lived intangibles of about US$30.0 billion inherited from the 2018 merger.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Breakdown of capital uses for the trailing twelve months ended June 30, 2026: fixed-asset investment US$5,514 million, dividends US$2,878 million, and net repurchases US$4,057 million. Acquisitions, net of cash acquired, were US$412 million in 2025 (US$317 million in 2024 and US$953 million in 2023): against the other uses of capital they represent only about 3% of the total, and so they show as zero for immateriality, not for lack of data.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Reinvestment in the contracted backlog, a growing dividend, and sustained buybacks; shareholder return exceeds free cash flow and is completed with debt.
• Share buybacks. Observed net retirement close to 2.1% annually over the last three fiscal years, modeled forward at 1.8% annually given the demanding entry multiple.
• Candor in reporting. The release explicitly states that margin came in 60 basis points below the prior year due to cost inflation.
• Alignment and ownership. Detail on share holdings is pending from the DEF 14A proxy: no claim is made about insider ownership.

• It is not cheap: the share price pays 26×, well above the 14-to-19-times exit band that corresponds to the archetype, and the estimated return is left at -1% annually.
• The market identified the quality and pays for it: long-term contracts, local network density, sector-leading operating margin, and a return on operating capital far above the 10% bar.
• The scarcity of infrastructure assets with contracted, indexed revenue supports a structural premium: the flow behaves like a concession, not a cyclical manufacturer.
• The US$8.1 billion contracted backlog provides visibility and the market discounts it in advance, when in the base path that growth appears gradually.

The stock trades at this price because the business's quality is correctly identified, not because there is a discrepancy between perception and reality. Without that discrepancy there is no analytical edge, only a good business at a full price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -8%/year (-33% total): the margin of safety protects the downside. The bull (+3%/year, +15% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Industrial cycle. Exposure to chemicals and energy and to mining and metals, with high-fixed-cost installed capacity.
• Energy cost. It is the largest single cost and pass-through clauses may not fully offset it.
• Currency. About 64% of sales are generated outside the United States and hedges may not be effective.
• Tax residence. Irish company treated as a UK tax resident: a change of residence could trigger exit charges.
• Entry price. The multiple paid leaves the return depending on the premium holding, not only on earnings.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 13% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 5% at a multiple/growth of 5.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 13% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 10% vs our 5%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, switching costs, efficient scale, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 10% growth, far above our 5% — heroic assumptions.