Ansell (OTC:ANSLF, OTCPK:ANSLY) is an Australian company that manufactures safety products used in healthcare and for industrial application. The stock is down about 23% since I first wrote on the company three months ago. Currency headwinds and weak emerging economies have caused a decline in sales.
There are 154 million shares and the market cap is $1.9637 billion. Sales were down 7% in the first half of fiscal year 2015 to $748.8 million and earnings per share down 20% to 45.6¢. Free cash flow for the half was $66 million and the dividend 20¢. Earnings guidance for fiscal 2016 is 95¢ to $1.10.
Ansell hedges currencies 18 months ahead. The hedges hurt earnings as the American dollar was very strong. A share buyback is in place.
CEO Magnus Nicolin noted several reasons why the second half of 2016 should be better than the first half. One is that second half results are usually 51% to 52% of total results. Another is big wins with new wholesale distributors. One big win was with Grainger in the U.S. The currency hedges will wear off in the second half and weak commodities help with manufacturing. Nicolin also noted that the company will keep a healthy dividend and share buybacks (when it can).
No doubt a shaky economy affects Ansell. Distributors are wanting to keep only two months in inventory instead of three months. Emerging markets account for 24% of sales and BRIC economies are down. Brazil and Russia are two standouts that are hurting sales.
In the industries that Ansell services, some are cyclical and some are not. Oil and gas and mining are taking a beating, as to be expected. Healthcare and sexual awareness are not. People still make babies even in bad economies.
So the main two questions with Ansell are is there more pain for the stock and what are longer term projections? Management is bullish on new wholesaling arrangements and the deal with Granger. It is also bullish on new product lines and raising prices in some of its emerging markets. So the stock trades at a price to earnings ratio of 12.7 based on earnings guidance and the dividend yield is 3.14%. Not badly priced.
Looking at Grainger's web site, I see 232 products ranging from a few dollars to over $7,000. Fully body chemical suits are not cheap. I called up Grainger's help desk and asked for information on Ansell but they were of no help. They simply relay dimensions and price. The supplies are exclusively for industrial use. You can see why management is optimistic. It is a big contract and Grainger is spreading into Europe and Mexico.
W.W. Grainger's (NYSE:GWW) organic sales were down 2% in December, according to Credit Suisse. The company has lowered guidance and sites headwinds in Canada. Looking at their product line, I do not see how they could not be affected by energy, commodities, and agriculture.
The stock is down since I wrote on the company back in December. The market recognized that it would have currency headwinds and emerging market issues. I think the risk with the stock is not so much currencies but economies. Do people buy full body hazmat suits on oil rigs and in mines when commodity prices are so low? Not in my opinion. Management is bullish on new distributors but I'd like to see this happen in the next 12 months before I'd be a believer. Ansell seems to tied to the economy and not just health care. My guess is that there will be some more pain for the stock but it will be a buy eventually.
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