Company Overview: Ansell Limited (ASX: ANN) manufactures protective industrial and medical gloves. The company has two operating business segments, namely (1) Industrial and (2) 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 Decent Operational & Financial Fundamentals: The company remains focused on new product development and aims to bolster the manufacturing capabilities to support the increasing demand for safety solutions. The company is looking forward to strengthening its international footprint. Higher investments are intended to boost capacity and enhance ANN’s manufacturing efficacy along with organic growth.   ANN’s $80 million greenfield investment in India is in line with its key strategic priorities, which, in turn, will support significant growth, enhance its product differentiation, and strengthen the overall sourcing network.

Digging into FY21 Key Highlights

• Robust Sales & Impressive EBIT in FY21: During the period, the company recorded sales revenues of more than US$2 billion, thus achieving impressive organic sales growth across the business, which depicted a rise of over 22% year over year. The company delivered strong EBIT growth of more than 50% in constant currency in FY21, thanks to the massive expansion in EBIT margins to 16.7%. This aided the company to increase its overall capital expenditure by 36.5% to support growth in FY22 and beyond.
• Rise in Healthcare GBU Business: The company witnesses robust performance in its Healthcare business, where organic sales growth was up by 35%, owing to decent surgical performance and solid performance from Life Science.
• Decent Numbers from Industrial GBU Business: The segment bounced back from the distress of the onset of COVID-19 and recorded organic sales growth of 7% on pcp, owing to growth in chemical body protection and global economic upturn.
• Bottom Line Showed Flying Colours: During the period, the company witnessed a rise of 57.5% year over year in profits. The period's earnings per share went up by 59.9% year over year, owing to higher sales and expansion in GPADE margins.
• Expansion in Gross Profit Margin: In FY21, the company strengthened its gross profit by 120bps, post distributing expenses margins, owing to a favourable impact from stronger sales, better manufacturing volumes, plant efficiencies and SG&A operating leverage.
• Balance Sheet & Liquidity Position:  The company exited the period with a cash balance of US$240.2 million. Net Debt at the end of FY21 came in at US$279.9 million. Operating cash flow for FY21 stood at US$49.2 million, reflecting increased investment in working capital. The company declared a final dividend of US 43.6 cents, up by 53.6% year over year.

The below picture depicts ANN’s robust bottom-line performance since 2017.

Financial Highlights; Analysis by Kalkine Group

Key Metrics: In FY21, the company's gross margin stood at 40%, higher than the year-ago figure of 39.2%.  The net margins for FY21 stood at 12.3%, compared to 9.9% in FY20. The debt-to-equity ratio in FY21 came in at 0.33x, lower than the year-ago figure of 0.42x.

Profitability Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 25.40% 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 5.58% and 4.99%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  

• 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.
• Any adverse movement in foreign exchange price may impact the financial performance of the company.
• The company has been 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.  

Outlook: The company remains on track to implement its cost-cutting initiative in this inflationary environment. For FY22, the company continues to expect EPS in the range of 175 cents to 195 cents. The company also anticipates higher software investments in FY22. The company is well equipped to bring market protection solutions associated with changing customer needs, thanks to the company’s initiatives of making higher R&D spend for developing advanced and more sustainable materials. Further, the Greenfield investment in India will set a new benchmark at ANN for sustainable manufacturing in the future. The company remains well committed to leading the PPE and Healthcare industries by advancing its work related to climate change and completing corporate level scenario analysis and opportunities. Further, the company is expecting a positive impact from the Transformation program and remains focused on opportunities for further optimisation to enhance customer service.

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 ~24.3% in the past six months. Currently, the stock is trading near to its 52-week low level of A$30.13. 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 peers, considering a rise in net debt, risks related to COVID-19, 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 other have been considered. Considering geographical expansion, robust top-and bottom-line growth, enhancing shareholder’s value, decent rise in segmental revenues, positive impact from the Transformation program, current trading levels, and indicative upside in valuation, we recommend a “Buy” rating on the stock at the current market price of A$30.42 as on 17 November 2021, 10:30 AM (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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