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Mid-Cap

Ansell Ltd - Is it a Growing Opportunity?

September 16, 2015 | Team Kalkine
Ansell Ltd - Is it a Growing Opportunity?

Ongoing performance

Ansell Limited (ASX: ANN) reported a sales growth of 3.5% driven by acquisitions and brands, during the fiscal year of 2015, and witnessed a CAGR growth of 5.6% during 2008 to 2015. The group delivered an increase of 18.8% in reported earnings before interest and taxes to USD 245 million during fiscal year of 2015. Reported NPAT increased by 19.5% to USD 188 million against USD 42 million in prior corresponding period (impacted by the USD 123 million pre-tax, one-off restructuring charges during the FY14 period). The group delivered earnings per share growth for seven consecutive years, and the same rose by 11.4% to 122.5 cents in FY15 as compared to 110 cents in FY14. Ansell Limited is paying an unfranked dividend of US 23 cents per share resulting to the total dividends at US 43 cents per share, which is a 10% rise against the last fiscal year.
 

Improving performance for Ansell Limited (Source: Company Reports)
 

Currencies impact offset the rising sales


The falling Euro, Australian dollar and Canadian dollar have impacted the group’s earnings during the year, as the weighted average of major revenue currencies during fiscal year 2015 decreased 5% as compared to the last fiscal year, leading to over USD 75 million impact. Fourth quarter of 2015 rates led to over 8% weighted average revenue decline against last fiscal year. Ansell Limited commented that if these fourth quarter of 2015 rates prevailed for the fiscal year of 2016 as well, than the group’s revenues would be impacted by another USD 55 million. As per the cost currencies impact, the weighted average of cost currency fell by 3% during the fiscal year of 2015, against fiscal year of 2014. But weighted average of cost currency fell by 6% during fourth quarter of 2015, against fiscal year of 2014.
 

Revenue and cost currencies impact (Source: Company Reports)
 

Segment highlights

Ansell operates in four major business segments: Medical, Industrial, Single Use and Sexual Wellness. Industrial segment’s sales revenue comprises 41% of the group’s sales revenues, and fell over 6.7% year on year (yoy) to USD 668.5 million during fiscal year of 2015 impacted by tough Russian & Brazil economies coupled with losses across less distinguished segments of the portfolio. On the other hand, the Emerging Markets like China, MEA, Mexico, Mediterranean (excluding Russia & Brazil) delivered outstanding performance of 36%, 14%, 10% and 25% respectively in the division. The segment’s brands- HyFlex, Alphatec, ActivArmr and EDGE posted 6%, 11%, 25% and 85%, respectively as growth. The industrial segment’s new products also delivered a growth of 35% on year over year basis. Although overall EBIT fell by 1% yoy, organic EBIT delivered 8% growth on a yoy basis driven by better mix and productivity efforts. As per the Single Use segment, revenues surged 29.6% yoy to USD 241.1 million driven by organic sales growth from both Microflex and TNT by 4% and 7%, respectively. Total new products delivered an organic increase of 25% for the segment. However, Single Use segment’s EBIT soared 85% due to acquisition costs. Ansell's Sexual Wellness segment is back on growth track during the period, delivering a revenue increase of 2% yoy to USD 212.7 million boosted by the latex brands’ performance in China. Revenues in markets, China, Europe and India soared by 14%, 8% and 21%, respectively within the segment. SKYN brand delivered a revenue growth of 16% yoy driven by new launches and campaigns. With regards to the group’s Medical division, the segment delivered a Sales increase of 6.5% yoy to USD 419.9 million driven by the acquisition synergies, but decline from Russia and NA Latex Exam losses offset the increase. Within the segment, Synthetic Surgical (mainly driven from Gammex growth) and HSS delivered solid increase of 10% and 16%, respectively. Gammex, Medi-Grip and Sande witnessed a rise of 11%, 10% and 19%, respectively during the period.
 
 
New product sales (Source: Company Reports)
 

Stock Performance

Ansell issued a guidance of FY16 EPS in the range of US $ 1.05 to US $ 1.20, given the impact from currency and tax rate changes anticipated to bring a reduction of US 22 to 26 cents. The rising US dollar against most of the other major international currencies have been offset by hedging contracts during FY15. But with the expiry of these hedging contracts, the group estimates a severe impact in its earnings for the coming fiscal year. Moreover, the group said that its Australian income would be incurred with a tax charge from the second half of its 2016 financial year, as carry forward losses are fully recognized on its balance sheet. Therefore ANN shares slumped over 12% in last four months (till Sep 7 close). However, this correction has placed the stock at attractive P/E of 12.7x. The group has been delivering a solid growth in its global brands like Hyflex, Gammex, Barrier Safe and SKYN, and also expanding its manufacturing capabilities in low cost countries. The group has a solid competitive advantage against its competitors which gives it the pricing advantage. Also, the recent on-market buy back of shares is expected to boost EPS in near future.


ANN Daily Chart (Source: Thomson Reuters)

We give a “BUY” recommendation on the stock at the current price of 20.27.





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