Australia | Apr 01 2020
Ansell is experiencing unprecedented demand for protective gloves from the health sector and, unusual in the current environment, has maintained FY20 guidance.
-Reiterates guidance, based on forward visibility of orders
-Single-use gloves typically have higher margins
By Eva Brocklehurst
A global rush for protective products such as single-use gloves has meant Ansell ((ANN)) has received a strong boost in demand for some of its products. Moreover, in stark contrast to the rest of the market, Ansell intends to provide FY21 guidance in August.
Evidence shows chemical safety equipment has been re-purposed to clean infected areas and surgical gloves have been used as other medical gloves fell into short supply. Hence, with no sign this excessive demand will ease, Ord Minnett expects Ansell will reach the lower end of its guidance range in FY20, even with a precipitous drop in requirements for industrial safety gloves.
Meanwhile, the supply chain is resilient and management has kept its plants open despite increasingly stringent measures to control coronavirus. Underlying guidance has been maintained, with earnings per share of $1.12-1.22 expected for FY20, which would represent a 5% uplift at the mid point versus FY19.
Morgan Stanley understands the reiteration of guidance is based on forward visibility of the order pipeline. While the company's statement provide some confidence in the FY20 outlook, the broker envisages downside risk to FY21.
Ord Minnett notes the guidance also implies a very wide range of outcomes in the second half, from a -5% decline to 15% growth. The broker has upgraded to Hold from Lighten, while both Citi and Credit Suisse have upgraded to Buy and Outperform, respectively.
Credit Suisse assesses the company's brands of single-use gloves (Microflex, TouchNTuff), surgical gloves (Encore, Gammex) and chemical protection (AlphaTec) account for up to 45% of group sales and should offset the weakness in industrial glove demand while Citi cautions that the net impact is impossible to predict at this point.
Additionally, Credit Suisse notes single-use gloves typically have higher margins versus other health care and industrial gloves. The broker does point out that Ansell is unable to convert industrial glove manufacturing facilities to health care.