Top Performers on the ASX 200 were :-

 

---

 

Get up to 2 Years of free subscription by inviting your friends to KALKINE!

For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 

---

Ansell Video



 

Stock Of The Day - Ansell (Expensive)

Ansell Ltd. (ANN) posted strong results for the first half of FY2015 with a 20% growth in sales from improved organic growth as well as acquisitions and a 43% growth in EBIT because of the performance of acquisitions and the restructuring of the delivery of benefits. Free cash flow generation grew by 45% and EPS showed a satisfactory increase of 16%.

1HFY15 Results (Source – Company Reports)

The highlights of the profit and loss account for the half year reflected the favourable impact of better organic growth and the continuing execution of acquisitions. Sales grew by 20% to USD 847.3 million reflecting organic growth of 2.6% and the impact of acquisitions and exits of 19.4% partly offset by the negative impact of 2% because of unfavourable exchange rates. Owing to an improvement in EBIT margins from 11.8% of sales to 14% of sales, EBIT rose from USD 82.7 million to USD 118.3 million. Profit attributable to shareholders grew from USD 65.6 million to USD 87.7 million and EPS in US dollars grew from 49.6 cents per share to 57.3 cents per share.


Sales, EBIT, EPS and EBIT Margin (Source – Company Reports)

The sales and earnings growth was broad-based in terms of EBIT while the strongest sales growth was recorded in North America having the highest rate of organic growth and benefiting from the BSSI acquisition. Europe, Middle East and Africa, which are the global areas most affected by the worldwide economic slowdown, managed to maintain growth in EBIT while growth in Asia offset weak demand in the ANZ region. Latin America was negatively impacted by the weak economic growth in Brazil, though this was partly offset by strong growth in Mexico.


Portfolio Optimization (Source – Company Reports)

The balance sheet continues to be strong with gearing at an acceptable level of 26% and Return on Assets as well as Return on Equity in excess of 15%. Net operating assets stayed level at USD 1553.8 million and gearing at 26.3% continues to reflect the relatively low level of interest-bearing debt compared to equity.


Medical GBU (Source – Company Reports)

The company has maintained the 2015 guidance for EPS at between US dollar 1.18 and US dollar 1.26 which represents a 7% to 15% growth. Organic growth is expected to be between 2% and 4% at constant exchange rates reflecting the growth in core brands as well as the impact of new products and the progress in important verticals. The diversification in the sources of revenue has helped the strength in the USA to offset weaker growth in Western Europe, Russia and Brazil. EBIT is expected to grow at better than 20% because of the successful implementation of strategies to meet priorities, benefits from restructuring and the integration of acquisitions as well as hedging gains in foreign exchange from the US dollar.
 
The company has made good progress on the achievement of its priorities on strategic goals such as organic growth, profitability and cash flow generation as well as the optimum deployment of capital. The organic rate of growth is improving in priority areas such as Oil and Gas, Life Sciences, Chemical and Body Protection while the new leadership in the Sexual Wellness business means that it is back on a growth trajectory. The exploitation of synergies from acquisitions is constantly improving profitability and cash flow, and the benefits from technology driven productivity continue to accrue. The balance sheet has been strengthened through higher cash generation and, with the completion of the acquisition of Hands International and the divestiture of Lakeland equity for a profit, the company is now in a position to pursue further merger and acquisition opportunities.


Industrial GBU (Source – Company Reports)
 
The company has recently announced that it will acquire Microgard, the UK-based manufacturer of protective clothing, for US$ 88 million which amounts to about 9 times trailing EBITDA and the acquisition will be funded from cash on hand which stood at $ 266 million as at 31 December 2014. Microgard operates in more than 75 countries with 750 employees and has a manufacturing facility located in Xiamen, China. We believe that this acquisition will be beneficial for ANN given the strong brand name and the product range of the acquired company. Additional revenues from the acquisition by 2016 should be around US$ 50 million with an EBITDA margin in excess of 22%. Nonetheless, the acquisition is expected to be marginally dilutive to FY15 EPS.

ANN is a low-cost producer and has the ability of generating sustainable and steady revenues because the sectors in which it operates are relatively insulated from cyclical factors in demand. Most of its manufacturing is carried out in low-cost countries such as India, Brazil and Mexico. However, because of the global nature of its operations, it is vulnerable to exchange rate fluctuations. We expect the company to continue to pursue opportunities for bolt on acquisitions.

The Company continues to refresh its product portfolio at regular intervals and because of the strength of its brands, it is able to gain premium pricing for most of its offerings. This premium pricing also means that the Company is able to generate and maintain healthy operating margins. It has strong distribution capabilities which it manages through its own sales force of 600 salespeople as well as a global network of distributors. The recent sale of the Shah Alam property in Malaysia worth MYR65.6m in after tax profits was also reported by the Company as part of efforts towards incremental operational efficiency improvement.

One major drawback is that entry barriers are not high in the sectors in which ANN operates and new entrants do not require large amounts of capital or higher levels of technology in order to set up competing enterprises. Moreover, the cost of raw materials can fluctuate rapidly and in substantial volumes which would be a major source of cyclical vulnerability. We would consider the quality of management to be adequate but not exceptional.

Despite the advantages discussed above, we believe that the stock is expensive at the current price of $29.22.