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