Australia | Aug 25 2021
What will business be like for Ansell beyond the heights of the pandemic? Demand is expected to be solid and emanate from other areas beyond PPE
-Pandemic-related demand for PPE expected to ease back
-Yet recovering industrial/surgical activity provides support
-Manufacturing issues loom for Ansell in South East Asia
By Eva Brocklehurst
A notable beneficiary of the pandemic, Ansell ((ANN)) is now contemplating what business may be like beyond covid-19, particularly in the case of protective equipment (PPE) such as single-use gloves.
FY22 guidance is for earnings per share of $1.75-1.95 implying, as Morgans asseses, net profit could be down -9% to up 2%, amid multiple risks such as supply imbalances and logistical headaches. The company is also going to undergo a change of CEO.
Nevertheless, the broker believes the re-based business has strengthened, with a much greater focus on PPE and hygiene than before the pandemic. Customers are also looking for long-term agreements and supply certainty.
Organic volumes are expected to remain solid, albeit below the unparalleled levels of FY21, while unprecedented demand for PPE is likely to slow eventually yet not fall off a cliff, the broker adds, as support shifts to other products.
Citi expects growth rates will return to more normal levels beyond FY22, anticipating a contraction of -4% in both sales and earnings in that year, while upside risk remains if permanently high use of PPE occurs in some health care and industrial settings.
Ansell should be net cash by the end of FY23 and the broker expects an ungeared balance sheet beyond the pandemic will offer further upside for acquisitions or buybacks, although these are not included in forecasts.
Margin pressure is likely, Ord Minnett suggests, noting the price of gloves and PPE used during the pandemic has started to fall. The broker expects the impact will be shared between both suppliers and customers.
Yet this has been countered by a recovery in activity, particularly in developed countries, that has in turn supported industrial and surgical gloves. Production has not met demand and shortages exist in surgical gloves, even as inventory is building up in other areas.
Ord Minnett remains cautious about the Delta wave of coronavirus, which may require extended lockdowns in those countries where vaccination rates are lower. The focus is particularly on South East Asia, including Vietnam and Thailand.
The latest round of lockdowns in South East Asia is disrupting supply across the industry and Morgan Stanley, too, expects this should weigh on the first half results. Still, the broker believes earnings guidance remains achievable, noting the company is exhibiting confidence it can hold on to elevated profits in FY22.
Ansell believes it has mitigating strategies to allow for an expected contraction in examination/single-use gloves such as a shift to higher margin product.