Ansell Limited

For over a century, Ansell has delivered the most advanced protection solutions to millions of people…at work, at home and in harm’s way.

This year 2018, is a very special milestone at Ansell, as it was 125 years ago that our story began. Our journey started in 1893 when John Boyd Dunlop established the Australian branch of the Dunlop Pneumatic Tyre Company to manufacture bicycles in Melbourne, Australia. One of the mechanics employed there was a hard-working young man named Eric Norman Ansell.

In 1905, Eric Ansell recognized an opportunity when his employer was looking to dispose of some manufacturing equipment. With this discarded machinery, he founded what was to become the Ansell Rubber Company, initially a balloon & condom company that eventually expanded into surgical, household and work gloves.

In the years since, millions of people have come to rely on Ansell’s innovative products and safety solutions to protect them at home or on the job. The same dedication to quality and innovation that started with Eric Ansell, continues today, as Ansell has grown to serve 25 global industries in 120 countries in ways that shape and protect our modern world.


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Ansell Update

The Montgomery funds took a position in glove manufacturer, Ansell (ASX: ANN), after its first half result for the 2015 financial year exceeded our expectations. Six months on the company has announced its full year report, and while the results did not exceed the market’s expectations, our investment thesis remains intact.

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Ansell Grips Restructuring Challenge

Ansell (ANN) has embarked on a major rationalisation of its organisation, impairing brands and IT assets, closing its manufacturing site in Malaysia and discontinuing the Hawkeye military glove business. Given the scale of the company’s business, broker reactions were tepid, with most wanting more confirmation the company can rejig growth.

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Ansell Goes Brazilian

For some months Southern Cross Equities has been positive on the prospects of Ansell (ANN), suggesting there was upside in the share price as the company transformed into a higher growth play.

Continuing this growth strategy the company has acquired Blowtex of Brazil, a company with around 20% of what is the world’s fifth largest condom market. The acquisition on its own appears unlikely to drive the stock higher, but it does show the company’s capacity to grow its market share and to enter into new markets.

According to both GSJB Were and UBS the deal should be earnings neutral in FY07, Weres pointing out it represents only around 1% of group sales. Neither broker has adjusted its earnings estimates as a result, though UBS points out the deal should prove slightly accretive in FY08.

The broker is estimating earnings per share of 65c this year and 69c in FY08, while the GSJB Were forecasts are for 64.3c this year and 74.2c next year. Thomson One Analytics shows median estimates of 63c and 76c respectively.

Southern Cross’s forecasts are for 58.1c this year and 79.7c next year, while it suggests the acquisition is evidence of the opportunities to be found in new markets. With the Brazilian condom market growing at double-digit rates thanks to a government distribution program the deal looks good in terms of filling the company’s manufacturing capacity, UBS noting the company currently supplies 13% of global demand but has the capacity to lift this to 18%.

With this in mind Southern Cross expects the company to increase the operating capacity in Brazil, as such a move would allow it to bid on larger tenders. UBS also suggests the deal as likely to be the first of many, as on its estimates the company has a war chest of around US$200m available for additional purchases.

Further upside could also come from cost savings, as the broker notes there is potential for a consolidation of the company’s manufacturing facilities, with evidence of gains here likely to emerge late in FY08 or early in FY09.

Southern Cross also sees upside from savings, noting management in the Asian manufacturing operations appears focused on improving efficiencies and taking advantage of lower costs of production provided by the company’s technology. This technology is also proving beneficial in terms of product innovation, the broker pointing out this is helping management grow market share while preserving the value of its local brands.

The broker continues to rate the stock as a Buy, with a price target of $14.00. UBS is similarly positive in its rating and has a $13.19 target, while Thomson One shows a median price target of $13.12.

Overall the FNArena database shows the stock is rated as Buy twice, Neutral twice and Reduce once, with an average target of $12.42. Shares in Ansell are little changed in early trading, as at 10.45am the stock was down 3c at $11.46.

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Analyst Views