Company Overview: Ansell Limited (ASX: ANN) is involved in manufacturing protective industrial and medical gloves. The company’s expertise, innovative products, trusted brands, and advanced technologies help it to build customer confidence by providing solutions for new requirements.  The company has two operating business segments, namely Industrial and Healthcare. Employing more than 14,000 people globally, ANN has its operations in North America, Latin America/Caribbean, EMEA and the Asia Pacific.

ANN Details

ANN Rides on Strong Product Adoption & Decent Performance from SBUs Segment: ANN remains on track to invest in ERP, supply chain & digital technology. The company remains well committed to lead the PPE and Healthcare industries by advancing its work related to climate change and completing corporate level scenario analysis and opportunities. In addition, the company aims for margin expansion aided by commercial and operational efficacy. Further, the company is expecting a positive impact from the Transformation program and remains focused on opportunities for further optimisation to enhance customer service. 

Key Takeaways from FY21 (Period Ending 30 June 2021):

• Rise in Top-Line: During the period, revenue stood at US$2,027 million, increasing 25.6% year over year. Organic revenue for the period increased ~22.5% year over year. Growth amplified on the heels of Healthcare Global Business Unit (HGBU) momentum (up 34.8% on pcp) and improved Industrial Global Business Unit (IGBU) performance (up 7.1% on pcp).
• Growth in HGBU and IGBU Segment: Robust surgical performance and solid performance from Life Science aided growth in HGBU. IGBU increased as chemical body protection attained strong growth in FY21, whereas Chemical Gloves and Mechanical witnessed robust recovery in 2H, owing to global economic upturn.
• Higher EBIT: EBIT stood at US$338 million in FY21, up 56% year over year, driven by higher production volumes, favourable pricing/mix, and SG&A operating leverage.
• Increase in Profits: In FY21, profit stood at US$246.7 million, up 57.5% year over year and 48.5% increase on a constant currency basis. Earnings per share for the period came in at US 192.2 cents per share, up 59.9% year over year, owing to higher sales and expansion in GPADE margins.
• Enhancing Shareholder’s Value: The company declared a final dividend of US43.6 cents, depicting a rise of 53.6% year over year, taking full year dividend to US76.8 cents. 

The below picture depicts ANN’s strong top-line performance since 2017.

Financial Highlights; Analysis by Kalkine Group 

Balance Sheet & Liquidity Position:

• At the end of 30 June 2021, the company’s net debt stood at US$279.9 million, as compared to US$171.4 million at the end of FY20. The increase in net debt was on the back of additional capital employed.
• Total cash at the end of the period stood at US$240.2 million, as compared to US$408.9 million at the end of FY20.
• Operating cash flow for FY21 stood at US$49.2 million, reflecting increased investment in working capital to support sales growth and higher capital expenditure to expand capacity. ROCE in FY21 stood at 19.8%.

Key Metrics: In 1HFY21, the gross margin of the company stood at 40.3%, higher than the year-ago figure of 38.8%.  The EBITDA margins for 1HFY21 stood at 18.7%, compared to 7.3% of the industry median. The debt-to-equity ratio in 1HFY21 came in at 0.39x, lower than the year-ago figure of 0.46x.

Profitability & Liquidity Profile; Analysis by Kalkine Group 

Key Update: On 24 August 2021, the company appointed Mr Rikard Froberg to the role of President, of IGBU, effective from 1 September 2021. The company also plans to appoint Mr Morten Falkenberg as an Independent Non-executive Director, effective 11 November 2021.

Top 10 Shareholders: The top 10 shareholders together form around 22.56% of the total shareholdings, while the top 4 constitutes the maximum holding. The Vanguard Group, Inc. and Vinva Investment Management Limited are holding a maximum stake in the company at 6.05% and 5.04%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  

• The company is exposed to risks pertaining to climate-related regulatory requirements set by governments
• The company is exposed to risks associated with COVID-19 cases in Southeast Asia in recent months. This, in turn, is expected to disrupt supply and may impact the company sales during FY22.
• Higher freight costs and shipping postponements are also expected to continue throughout FY2022.  
• Any adverse movement in foreign exchange price may impact the financial performance of the company. 

Outlook: The company remains well equipped with a diversified portfolio and strives to stay focused on executing a differentiated business proposition, which will improve shareholder’s value. The company anticipates higher demand for Mechanical, Surgical, Life Sciences and internally manufactured Single Use gloves. For FY22, the company expects EPS to be in the ambit of 175 cents to 195 cents. The company also anticipates higher software investments in FY22. ANN further aims to generate significant cash from operations and maintain a healthy balance sheet. It also remains on track to deliver significant value to its shareholders through the continuous payment of dividends, share buybacks and investment in new and latest technological know-how.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~8.73% in the past three months. Currently, the stock has a 52-week high and low level of $44.07 and $33.23, respectively. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount compared to its peer average, risks related to COVID-19, increased costs and expenditure, foreign currency risk, strict regulatory approval, increased freight costs and shipping delays, etc. For the purpose of valuation, peers such as Sigma Healthcare Ltd (ASX: SIG), Regis Healthcare Ltd (ASX: REG), and others have been considered. Taking into account the aforesaid fact, increase in top-line in FY21, diversified portfolio, geographical expansion, enhancing shareholder’s value, encouraging long-term outlook, current trading levels, valuation, and key risks associated with the business, we recommend a “Buy” rating on the stock at the current market price of $37.09 as on 25 August 2021, 4:05 PM (GMT+10), Sydney, Eastern Australia.

ANN Daily Technical Chart, Data Source: REFINITIV

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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