Ansell: PPE demand remains strong

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
28 April 2021, 4:50 PM
Sectors Covered:
Healthcare

  • Ongoing elevated demand for PPE and product supply on track to meet that demand saw the company provide a favourable trading update and upgrade guidance, again.
  • The main Healthcare and Industrial divisions saw performance improve, with pricing leverage offsetting increased costs and the ability to actively manage disruptions in both raw materials and logistics.
  • While momentum will inevitably slow, we believe demand for personal protection solutions will remain robust and ANN is well positioned.
  • We increase our FY21-23 estimates, with our price target increasing; Add maintained.

Jan-21 stronger than expected; PPE demand remains robust

ANN provided a favourable trading update and upgraded its FY21 outlook, the fourth time in FY21. The company is now targeting EPS of US$1.92-2.02 (+60-68%; previously US$1.60-1.70), with 2HFY21 sales growth expected to be above the 24.5% reported in 1HFY21.

Management indicated that performance since Jan-21 has been “stronger than expected”, with continued strong demand for PPE seen around the world and with its ongoing capacity expansions remaining on track to meet that demand.

Managing through the headwinds to supply customers

The main takeouts underpinning the upgrade include:

  1. limited downtime or employee disruption to date;
  2. price increases helping to better manage increased raw material and outsourced supplier costs in the Medical Exam and Single Unit verticals;
  3. faster than expected comeback in Mechanical and Surgical divisions, with Chemical and Life Sciences performing strongly;
  4. supplying customers despite tightness in raw materials and logistical disruptions; and
  5. lower opex (ie limited travel/marketing due to travel restrictions).

Pandemic fortifying its position

While momentum will inevitably slow and we note ongoing risks (eg demand/supply imbalances; rising input costs; logistical concerns), we continue to believe the pandemic has strengthened ANN's position with:

  1. a greater focus on PPE and hygiene;
  2. customers/distributors looking for long-term agreements and supply certainty;
  3. likely sector consolidation; and
  4. capacity expansions driving volume gains.

Earnings changes; Add maintained

We have adjusted our FY21-23 earnings forecasts, increasing underlying earnings by up to 20%.

Our target price rises to (Morgans clients login to view), with a TSR of >10%, we maintain an Add rating.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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