Company Reports

Ansell’s focus is on its key brands across industrial and healthcare settings. Each market is quite fragmented and Ansell’s market share varies by subsegment, but the firm has consistently held the highest or second-highest global market share in its key verticals. Competitors differ between the two segments but are either divisions of large global players or regional companies. Key industrial competitors are Honeywell, Globus, a private UK company, and ATG Gloves in the US In the healthcare segment, Halyard Health (spun out of Kimberly Clark in 2014) and Cardinal Health are major players.

Ansell is acquiring Kimberly-Clark’s Personal Protective Equipment business, or KCPPE, for USD 640 million. We think Ansell is paying a good price and is getting the business for less than we think it’s worth. We increase our fair value estimate by 7% to AUD 32 as we assume stronger returns on new capital that Ansell invests in the future. We think this is appropriate given that KCPPE is a higher-margin business and is significantly less capital-intensive. While we think Ansell is getting a good price, the accompanying dilutive equity raise at AUD 22.45 per share partially offsets the benefit to fair value. Assuming the raise is fully subscribed, it adds 21 million shares, a 17% expansion of the share count.

Ansell’s focus is on its key brands across industrial and healthcare settings. Each market is quite fragmented and Ansell’s market share varies by subsegment, but the firm has consistently held the highest or second-highest global market share in its key verticals. Competitors differ between the two segments but are either divisions of large global players or regional companies. Key industrial competitors are Honeywell, Globus, a private U.K. company, and ATG Gloves in the U.S. In the healthcare segment, Halyard Health (spun out of Kimberly Clark in 2014) and Cardinal Health are major players.

Narrow-moat Ansell’s first-half fiscal 2024 underlying earnings per share fell 13% to USD 0.41 but were close to our expectations. Our fiscal 2024 underlying EPS forecast of USD 1.00 is within management’s narrowed guidance range of USD 0.94-USD 1.10. The firm did lower its guidance for statutory EPS by 7% at the midpoint to USD 0.57-USD 0.77, largely due to roughly USD 10 million in additional one-off costs associated with its productivity program.

Ansell’s focus is on its key brands across industrial and healthcare settings. Each market is quite fragmented and Ansell’s market share varies by subsegment, but the firm has consistently held the highest or second-highest global market share in its key verticals. Competitors differ between the two segments but are either divisions of large global players or regional companies. Key industrial competitors are Honeywell, Globus, a private U.K. company, and ATG Gloves in the U.S. In the healthcare segment, Halyard Health (spun out of Kimberly Clark in 2014) and Cardinal Health are major players.

We maintain our AUD 30 fair value estimate for narrow-moat Ansell following a brief trading update. Our fiscal 2024 EPS forecast of USD 1.01 remains within management’s reiterated guidance of USD 0.92 to USD 1.12. Customer destocking in surgical and life science businesses is expected to persist until the second half of fiscal 2024, but the worst appears to be behind Ansell with end-user demand largely back to normal.

We maintain our AUD 33 fair value estimate for narrow-moat Ansell following interim 2021 results. EPS grew 65% to USD 0.829, in the midrange of previous guidance. Ansell’s full-year EPS guidance range of USD 1.60–1.70 implies a similar half, a bit better than we had expected. Accordingly, we increase our fiscal 2021 EPS forecast by 11% to USD 1.64. However, we leave our five-year EPS CAGR forecast of 8.4% unchanged, as we continue to expect pricing and volumes to normalise as supply eventually catches up with demand. Shares screen as overvalued at current levels, reflecting the market’s more optimistic view of long-term sustainable earnings-growth rates.

Ansell is focused almost entirely on protective gloves in industrial and healthcare settings. Each of the markets is quite fragmented and Ansell’s market position differs by vertical, but the company is estimated to be in the top two players with approximately 10% market share in industrial, and in the top three players with approximately 9% market share in healthcare. Competitors differ between the two segments but are either divisions of large global players or regional companies. Key industrial competitors are Honeywell, Globus, a private U.K. company, and ATG Gloves in the U.S. In the healthcare segment Halyard Health (spun out of Kimberly Clark in 2014) and Cardinal Health are major players.

We expect the current health crisis to evolve into a sustained economic downturn and consequently reduce our forecasts for narrow-moat Ansell’s industrial segment. The industrial business contributes approximately half of revenue and is closely linked to the global manufacturing cycle. Using U.S. and European Purchasing Managers' Indexes as an indicator, we revise our five-year revenue growth forecast for the segment to negative 2.1% from positive 3.6% prior. We reduce our fair value estimate to AUD 33, from AUD 34. The impact on stock valuation is muted by currency changes and expected softness in raw material input prices. Nitrile rubber is a key input, and as a byproduct of oil production, we expect oil price weakness and reduced industrial demand to lead to lower input costs for Ansell. We also expect cost relief from a weakened Thai baht to USD exchange rate. Our AUD 33 fair value estimate is based on an AUD/USD exchange rate of 0.59.

Narrow-moat Ansell posted a first-half result broadly in line with our expectations and maintained fiscal 2020 guidance despite significant currency headwinds. The industrial segment sales, a reflection of global manufacturing, recovered to positive growth sooner than we anticipated after declining in fiscal 2019. Consequently, we adjust our near-term industrial revenue forecast to positive 3% growth in fiscal year 2020 from negative 1% prior. However, operational costs in this segment also ran ahead as the company shifted manufacturing locations during the period, negating any earnings or valuation impact. Our long-term growth expectations are unchanged and we view Ansell as well-managed and able to deliver a consistent, growing earnings stream. However, we increase our fair value estimate to AUD 34 from AUD 32 to reflect the time value of money and an updated USD/AUD exchange rate of 0.67.

In the business update provided at its annual general meeting, narrow-moat Ansell maintained its EPS guidance range of 112 U.S. cents to 122 U.S. cents for fiscal 2020 despite the ongoing deterioration in the global manufacturing cycle and foreign exchange headwinds from a strong U.S. dollar. Our forecast of 115 U.S. cents per share is within this range and we maintain our AUD 32 fair value estimate based on a U.S. dollar to Australian dollar Australian dollar exchange rate of 0.69.

We increase our fair value estimate for narrow-moat Ansell to AUD 32.00 following a transfer of analyst, driven by continued positive impacts from business consolidation, and further impressive capital management. The fiscal 2019 result displayed the contrasting nature of the business’s two segments. The highly defensive healthcare segment grew the top line at a solid 2.7% in USD (4.8% in constant currency), which is much better than the cyclical industrial segment, which saw revenue down 1.6% in USD (up 1.5% in constant currency) on the back of a sharp second-half downturn in both Europe and North America. We expect similar top line dynamics in fiscal 2020 with healthcare segment growing 4% and outperforming the industrial business resulting in overall revenue growth of 3.1% at the bottom end of the 3% to 5% long-term range.

After rallying more than 20% since the beginning of calendar 2019, shares in Ansell are now fairly valued relative to our unchanged AUD 27.00 fair value estimate. We continue to forecast high-single-digit earnings CAGR over the five years to fiscal 2023, with a meaningful proportion coming from margin expansion on the back of increased selling prices, reduced raw materials cost in addition to the cost savings from the transformation program.

Narrow-moat-rated Ansell reported adjusted net profit of USD 64 million for the first half of fiscal 2019, a 1% increase on last year. Earnings were constrained by higher raw material costs (primarily Nitrile), while uncertainty in the European automotive market impacted demand for Ansell’s protective gloves. However, the company is reaping the benefits of its ongoing transformation program and management now expects to exceed the original cost savings target. The board declared an interim unfranked dividend of USD 20.75 cents per share, a 1% increase on last year. We maintain our AUD 27 per share fair value estimate, and at current levels the stock is slightly undervalued.

Narrow-moat-rated Ansell acquired Ringers Gloves, a Houston Texas-based leading provider of specialty gloves in the oil, gas, and general industries. The firm generates USD 34 million per year in sales and serves a global customer base. While a relatively tiny business, from a strategic standpoint we believe the acquisition makes sense. It ties in well with the firm’s growth strategy of expanding its leading position across the full range of industrial hand protection. The transaction will create a leading position in the growing impact protection market, and the firm should be able to extract revenue synergies by leveraging its global sales reach. The acquisition should further strengthen the firm’s competitive advantage, and its narrow economic moat which is hinged on its portfolio of strong brands and low-cost manufacturing.

We reiterate our AUD 27.00 per share fair value estimate for Ansell as we transition coverage to a new analyst. Our narrow economic moat and medium fair value uncertainty rating are unchanged. Shares in Ansell currently trade at a modest discount to our fair value estimate.

Narrow-moat Ansell delivered full-year results in line with expectations after adjusting for the divestment of its sexual wellness business. Net profit after tax of USD 146.7 million on group revenue of USD 1,489 million, up around 23% and 8%, respectively, year on year and on a continuing business basis, tracked our forecast of USD 150 million and USD 1,483 million. A full-year dividend of USD 0.455 was declared. We maintain our long-term forecasts and raise our fair value estimate by 4% to AUD 27 per share from AUD 26, after adjusting for an Australian dollar/U.S. dollar exchange rate of 0.73. At current levels, we consider shares in Ansell fairly valued.

We are raising our fair value estimate for narrow-moat-rated Ansell to AUD 26 per share from AUD 24 previously, after adjusting for the recent weakness in the Australian dollar/U.S. dollar exchange rate which currently stands at 0.74. Our forecasts, which are denominated in U.S. dollars, however, remain unchanged. As a result, we see the shares as slightly overvalued at current levels.

Narrow-moat Ansell reported underlying net profit after tax of USD 66.6 million, up 24% on the prior corresponding period. With earnings typically stronger in the second half, the firm remains on track to meet our full-year net profit after tax forecast of USD 143 million. As such, there was little in the result that would alter our long-term view of the company. Ansell declared an interim dividend of USD 0.205, representing a payout ratio of 44.5%, in line with our forecasts.

We raise our fair value estimate to AUD 24 per share for narrow-moat Ansell largely due to time value of money considerations and the incorporation of an Australian dollar/U.S. dollar exchange rate of 0.77. At current levels, shares in Ansell are trading broadly in line with our revised valuation and are therefore fairly valued.