The Ansell Limited (ASX: ANN) share price has increased by 14% in the past year, outperforming the S&P/ASX 200 Index (ASX: XJO)'s 19% fall. It manufactures protective industrial and medical gloves.
Business update
Ansell's recent COVID-19 business update contributed to the outperformance. Demand for hand and body protection products is surging as the medical community races to manage the coronavirus pandemic. I anticipate demand to continue being strong for the foreseeable future due to the evolving nature of the situation. The protection of our medical professionals is vital as they help protect the community.
Ansell noted it expects growth in sales to be offset by declining demand for industrial products because of temporary lockdown and export restrictions.
The table below demonstrates that Ansell's healthcare and industrial segments contribute significant revenue, therefore any fall in industrial revenue and an increase in healthcare could impact on sales growth.
|
Operating segments |
||||
|
31-Dec-19 |
Total |
|||
|
Healthcare ($m) |
Industrial ($m) |
Revenue ($m) |
||
|
Revenue |
394.9 |
358.4 |
753.3 |
|
|
Share of Revenue |
52% |
48% |
100% |
|
Table: Author's own. Data source: Ansell 2019 December Half Year Report.
Financial performance
In contrast with many businesses, Ansell has reiterated its EPS guidance range of between 112 to 122 US cents.
Its $515 million cash pile helps it remain flexible in these uncertain times, particularly with no significant debt maturities in the next 12 months.
In a press release on 2 April, Ansell's CEO Magnus Nicolin stated "in this challenging global crisis, Ansell has expanded production capacity of protective products critical to healthcare workers and other essential industries…"
The announcement also highlighted that Ansell has serious concerns about the supply chain. Nicolin stated "we have serious concerns that suppliers of raw materials and components are impacted, threatening continued output of our protective products crucial to managing the pandemic and keeping workers safe."
He also raised concerns about controls on exports and shipments across borders. Ansell is working with government organisations to maintain their ability to continue manufacturing products and distributing them where needed.
Ansell is encouraging government and PPE suppliers to ensure plants and borders stay open throughout the global supply chain. I think this is very important in ensuring that medical staff all around the world are equipped with the resources they need.
Ansell is having trouble with some European countries. According to its geographic breakdown (as seen in the table below), Europe generated 34% of its revenue. Supply chain disruption could significantly impact on its overall business.
|
Geographic revenue representation |
||
|
Region |
Dec-19 |
% share of |
|
$m |
revenue |
|
|
Asia Pacific |
98.50 |
13% |
|
Europe, Middle East and Africa |
257.30 |
34% |
|
Latin America and Carribean |
52.20 |
7% |
|
North America |
345.30 |
46% |
|
Total revenue |
753.30 |
100% |
Table: Author's own. Data source: Ansell 2019 December Half Year Report.
Having said that, Ansell's geographic diversification is also a strength, in the event in an isolated economic shock in one country.
Foolish takeaway
After significant outperformance in share price relative to the broader market, I am concerned about the impact of border restrictions and potential supply chain disruption on Ansell's share price.
On balance, I believe the market has priced in the update. If the Ansell share price was to dip back to around $21 as it did around 2 weeks ago, then that may present a better price point in my opinion.
