Down but not out

Ansell’s share price has taken a hit, but for the patient investor this could be a buying opportunity

- GRAHAM WITCOMB

Picture a line of gloves placed end-to-end. Now stretch that line out 5.2km into the horizon. A typical glove is around 23cm long, so the line contains around 22,800 gloves. That’s how many gloves Ansell sold every minute last year … about 12 billion in total.

On the list of 2020’s hottest commodities, personal protective equipment (PPE) was near the top, and Ansell used that excess demand to raise prices on many products. The company’s revenue rose 35% since 2019 and net profit more than doubled to a record $US247 million ($350 million).

Ansell has since lowered its guidance for 2022 earnings, prompting a 21% tumble in its share price. Management had previously said the company would earn $US1.75–1.95 per share but it now expects underlying earnings of $US1.25–1.45, a 27% decline at the midpoint.

Sales are expected to come in at $US1 billion for the six months to December, with operating profits of $US111 million and earnings per share of 61 US cents.

This is disappointing, but also an opportunity. Ansell is still a major beneficiary of the pandemic: if earnings hit management’s estimates this year, profits will still be 20% higher than in 2019. It’s mostly a case of high expectations being dashed rather than poor performance in absolute terms.

Management attributed the slowing growth to: (1) easing demand for exam and single-use gloves; (2) distributors purchasing fewer gloves as they work down high inventory levels built last year; and (3) shrinking margins due to a shift in sales to lower-margin products as well as higher freight and labour costs.