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Is the Ansell share price cheap?

This morning Ansell Limited (ASX: ANN) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half (all figures in US$).

  • Statutory net profit after tax $39.5 million, down 91%
  • Revenue from continuing operations of $725.3m, up 2.3% on constant currency basis
  • Normalised net profit of $63.6 million, up 1.1% excluding “impact of higher effective tax rate”
  • Earnings per share (EPS) of 28.6 cents, down from 46 cents
  • “Adjusted” EPS of 46.1 cents when backing out “transformation costs” and prior tax benefits
  • Interim dividend of 20.75 cents, compared to 20.5 cents
  • Bought back $168.8 million worth of shares over period at average price of A$23.42
  • Net debt to EBITDA ratio of 0.5x
  • Closed $70 million acquisition of Ringers Gloves on Feb 1, 2019
  • Full year adjusted EPS now expected to be in the range of US106 – US112 cents

This is a complicated set of results from a business that has undergone a significant restructure in recent years including the 2017 sale of its condom manufacturing business that flowed through to the prior fiscal year’s numbers.

As a result of the major restructure the company has backed out “transformation costs” to reach “adjusted” EPS of 46.1 cents, however the reality is that EPS came in at 28.6 cents including these costs ,which is a significant fall from the 46 cents in the prior year.

The gloves maker and healthcare product manufacturer attributed the average result to, inter alia, higher raw material costs, risks from U.S. import tariffs, and weakness in some emerging markets such as Brazil and Russia.

Outlook

Despite the challenges the group now expects fiscal 2019 EPS to come in at the upper end of its previous guidance range between US100 to US112 cents in a positive result for investors.

The stock at $24.22 does not look expensive on around 16x FX-adjusted forecast EPS, however, this conclusion depends to what extent investors are prepared to accept the practice of backing out “transformation costs” to reach that number.

I’m not a buyer of Ansell shares, as I’d only buy the best of the best stocks in the healthcare and industrials space.

For example a business like CSL Limited (ASX: CSL) reported much cleaner numbers last week and looks a buy to me today after recent share price falls.

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Motley Fool contributor Tom Richardson owns shares of CSL Ltd.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended Ansell Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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