Key points
- The Ansell share price has suffered a 20% drop since the start of the year
- Not only is the company experiencing a fall in demand, but it's also hurting from COVID impacts on manufacturing and the supply chain
- However, Citi thinks the negative impacts will normalise, making the glovemaker an attractive long-term opportunity
The Ansell Limited (ASX: ANN) share price has fallen by around 20% since the start of 2022. After such a large drop for this global leader in protective wear, is it now an investment opportunity?
What happened to the Ansell share price?
Whilst part of the Ansell decline occurred when the whole ASX share market was being sold off, it has dropped 17% since providing an FY22 update to investors.
The personal protection business said that it's expecting FY22 first half sales to be US$1.01 billion. That's "significant" growth compared to the first half of FY20 and higher than the FY21 first half.
However, there was softer demand for examination and single use products. This led to lower prices, though it managed to achieve lower pricing from outsourced suppliers. But demand slowed faster than expected.
Volumes of outsourced finished goods were lower, with a significant factor being a desire by distributors and end users to work down high levels of inventory before reordering.
However, the surgical, life sciences and mechanical segment delivered a "solid" sales performance. Surgical and life sciences saw particularly good growth in mature markets with new business wins and strong demand conditions.
A combination of shutdowns on manufacturing (leading to lost output) and continued logistics disruption lengthened the delivery time of getting products to customers with the result being that some orders across all businesses were not fulfilled as expected.
The manufacturing shutdowns also meant that there were lower recoveries of fixed costs.
Ansell is expecting to report HY22 earnings before interest and tax (EBIT) of US$111 million and earnings per share (EPS) of US$0.61.
More problems
Not only was the first six months seemingly affecting the Ansell share price, but problems have continued into the second half.
Ansell's manufacturing facilities are seeing increased numbers of COVID-19, with one factory in Malaysia being asked to shut down. Other factories could potentially have to shut down or operate at partial levels.
The ASX share also noted that the US Customs and Border Protection issued a 'withhold release order' on 28 January 2022 against YTY, a major supplier of examination and single use gloves to Ansell, which will prevent its disposable gloves from being imported into the US. YTY will seek to demonstrate its manufacturing operations are free from any forced labour practices. Ansell said it prefers to work with suppliers to achieve meaningful improvement.
Updated profit guidance
Ansell said that due to the lower-than-anticipated performance and YTY supply disruption, and considering the demand and margin outlook, it's now expecting FY22 EPS to be between US$1.25 to US$1.45 per share, down from US$1.75 to US$1.95 per share.
Analyst rating on the Ansell share price
Some brokers think the business is now at fair value, such as Credit Suisse which is 'neutral' on the company and it has a price target of $26.50. Credit Suisse thinks that it may still be a challenge to hit the reduced profit guidance.
However, others still believe the business has long-term return potential, particularly after the sell-off. Citi rates Ansell as a buy, with a price target of $37.50 – more than 40% higher than today. The broker thinks that some of the impacts being faced by Ansell will improve as time goes on.
