##{"id":60421,"date":"2012-08-15T12:18:50","date_gmt":"2012-08-15T02:18:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/08\/15\/ansell-has-it-covered\/"},"modified":"2012-08-15T12:18:50","modified_gmt":"2012-08-15T02:18:50","slug":"ansell-has-it-covered","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/08\/15\/ansell-has-it-covered\/","title":{"rendered":"Ansell Has It Covered"},"content":{"rendered":"

\n\t – Ansell<\/span> delivers solid result
\n\t – New products and emerging markets support growth
\n\t – Upside risk from additional acquisitions
\n\t – Macquarie upgrades to a Buy rating<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tConsensus earnings per share (EPS) forecasts for latex healthcare and safety product manufacturer Ansell<\/span> ((ANN)) for FY12<\/span> were around US103c<\/span>, so a result of US101.4c was generally regarded as good enough given tough operating conditions in the period in Europe in particular.<\/p>\n

\n\tFor Deutsche Bank the highlight of Ansell's<\/span> result was stronger group margins, as these were achieved despite the company having some issues and unexpected costs stemming from the implementation of a new system designed to replace numerous legacy systems being used. As noted by Bell Potter, the new enterprise resource planning (ERP) system from Oracle forms a key part of Project Fusion, which aims to improve Ansell's<\/span> ability to respond to customer needs.<\/p>\n

\n\tManagement at Ansell<\/span> has guided to EPS in FY13<\/span> of US107-112c<\/span>, which would represent growth of 5-10% from FY12<\/span>. Driving the increase will be new product launches, along with further synergies stemming from the recent acquisition of Comasec<\/span>.<\/p>\n

\n\tAs Deutsche notes, Ansell<\/span> is set to launch more than 40 new products across all divisions in FY13<\/span>. This level of new product launches is expected to become the norm as Ansell<\/span> attempts to stay ahead of competitors. <\/p>\n

\n\tNew products should underpin earnings growth expectations in the view of BA Merrill Lynch, especially given Ansell<\/span> will be cycling weak comparable revenue numbers for the key industrial division in particular in the first half of FY13<\/span>. <\/p>\n

\n\tBell Potter agrees, noting Ansell<\/span> typically generates around 20% of revenues from products less than three years old. A new global business unit structure should help in this regard, as it will allow for greater innovation and marketing attention for neglected products and customer groups.<\/p>\n

\n\tThe Specialty Markets division offers an example of this, as improved focus has lifted margins and sales in this division over the past year. <\/p>\n

\n\tAnother positive to Ansell's<\/span> earnings growth outlook is increasing penetration in emerging markets. As Macquarie points out, emerging market sales grew by 18% in FY12<\/span> compared to no growth in developed markets, with emerging markets now accounting for almost one-quarter of Ansell's<\/span> total sales. <\/p>\n

\n\tFollowing the Comasec<\/span> acquisition, Deutsche estimates Ansell<\/span> has around US$200 million available for further acquisitions without exceeding the group's gearing target of 30%.<\/p>\n

\n\tEarnings per share forecasts for Ansell<\/span> suggest solid growth, as consensus forecasts according to the FNArena<\/span> database stand at US110.1c in FY13<\/span> and US126.3c in FY14<\/span>. In most cases brokers have made minor revisions to earnings estimates.<\/p>\n

\n\tAside from still difficult economic conditions in some major market such as Europe, a possible constraint to earnings growth noted by JP Morgan is latex prices. While Ansell<\/span> was a beneficiary of significant price rises in FY11<\/span> as compensation for rising Natural Rubber Latex prices, latex prices are now falling.<\/p>\n

\n\tThis is likely to pressure Ansell<\/span> to pass on some of these price falls to customers, something management has acknowledged is already occurring on bigger contracts. At present the plan is to pass through less than 50% of the benefit, which JP Morgan suggests offers scope for some market share losses.<\/p>\n

\n\tWith FY12<\/span> earnings demonstrating resilience in the face of tough market conditions, Macquarie suggests market concerns with respect to Ansell's<\/span> potential exposure to current global economic conditions have been addressed.<\/p>\n

\n\tThis is enough for Macquarie to upgrade to an Outperform rating, based on expectations of Ansell's<\/span> earnings multiple returning to a premium more appropriate for a higher growth defensive company. Such a multiple expansion appears justified to the broker given Ansell's<\/span> superior earnings growth profile relative to peers. Citi<\/span> agrees, pointing out there is some upside risk to Ansell's<\/span> earnings outlook if latex prices maintain current levels through the coming year. <\/p>\n

\n\tAs a counter argument, BA-ML suggests Ansell's<\/span> reliance on new products to drive margin and earnings growth in coming years carries some risk. As well, UBS suggests Ansell<\/span> will need make some further acquisitions to deliver on earnings growth guidance for FY13<\/span>. <\/p>\n

\n\tBoth BA-ML and UBS rate Ansell<\/span> as Hold, while the FNArena<\/span> database shows a total of two Buy ratings and five Hold recommendations. Bell Potter is not in the FNArena<\/span> database but also rates Ansell<\/span> as a Buy.<\/p>\n

\n\tPrice targets for Ansell<\/span> range from Deutsche Bank at $14.25 to Citi<\/span> at $16.65, while Bell Potter's target is unchanged at $17.00. The consensus price target of $15.06, up from $14.88 prior to the result, implies limited upside relative to the current share price.<\/p>\n

\n\tShares in Ansell<\/span> today are higher in a weaker overall market and as at 11.50am the stock was up 56c<\/span> or nearly 4% at $14.80. <\/p>\n

\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"