In today’s daily we have covered stock research on Ansell (Expensive).

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S&P 500 was up 9.55 points or 0.49% on Wednesday and closed at 1959.53.  U.S. stock indexes rose on Wednesday after a Supreme Court decision boosted the shares of major broadcasters and as drug makers stocks rallied. Some of the stocks that rallied were Monsanto (5.1%) after raising its full year forecast for ongoing earnings, CBS Corp. (6.2%) after the U.S. Supreme Court ruling with regard to Aereo Inc’s broadcasting methods. Economic data showed that the U.S economy shrank 2.9% in the first quarter.

Oil prices remain at elevated levels not seen since last September as concern about the ongoing violence in Iraq and potential disruption in supply continues to be felt in commodities markets. Copper prices fell in New York trading, halting the longest string of gains for the red metal since 2010. Copper for September delivery decline 0.2% to $3.139 a pound on the Comex in New York.


S&P 500 Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was down by 30.8points or 0.57%on Wednesday and closed at 5402.0 points. AGL Energy has welcomed the decision of Australian Competition Tribunal which effectively overturns the decision of ACCC to oppose AGL’s acquisition of the assets of Macquarie Generation (MacGen). NAB has become a substantial shareholder of JB Hi-Fi with a voting power of 5.23%. Arena Investment Management has sold 10 childcare centres for an aggregate price of $14.2 million reflecting a 47% premium above the current book value of $9.68 million.

Flexigroup announced the issue of AUD255m asset backed securities supported by a pool of Australian unsecured retail no interest ever payment plans. NewSat (NWT) has announced a new teleport customer contract with an Asian telecommunications company worth US$13.6 million over three years. Devine Group has announced that Leighton group is looking to sell its 50% stake in the company. Collins Food has announced an increase in revenue of 3.9% for reporting period till 27April 2014 and decline in net profit of 14.3%.


ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-



Stock of the Day – Ansell (ANN)
 
Despite a frustratingly slow economic recovery and a weak first half result we believe Ansell is on track to deliver a FY14 result within its guidance range thanks to materially weaker input costs and stable selling prices. As the acquisitions are bedded down we expect earnings growth to lift as management turns its focus to lifting organic growth especially via new product launches.


Purchasing Manager's Index (Source – Company Reports)

Ansell has delivered only 1% organic growth per annum in the 18 months to December 2013 well below its historic average. Given the groups higher fixed costs we see good earnings upside if management’s increased focus on boosting sales from new product launches begins to bear fruit. Key downside risks primarily stem from protracted slowdown in sales from industrial division due to weakening of world industrial production and pressure on market share from more aggressive competitors.


Ansell Growth Trends (Source – Company Reports)

The double digits declines in key raw material costs compared with previous corresponding period should have provided a material boost to Ansell’s margins from the second half of FY14. However this benefit will likely have been offset by higher costs as spending has normalized compared with the previous corresponding period when a very aggressive cost cutting program was implemented.


ANN Daily Chart (Source – Thomson Reuters)

As the recent spate of acquisitions are bedded down we expect management to increase its focus on lifting organic growth. Raw materials account for 25% of Ansell’s costs with Natural Rubber Latex and nitrile latex the two key commodities, together accounting for nearly 15% of group costs by our estimates. While it is more difficult to track spot prices of other key inputs, industry feedback suggests most commodity prices have been soft. Cotton has risen but represents only a small part of the group’s raw material costs. We believe the stock is expensive at its current price and would review the stock at a later date.
 

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