Ord Minnett has taken the opportunity to review its estimates for Ansell following the recent sale of the company’s Sexual Wellness (condoms) business. Our revisions include slower sales growth given the remaining divisions are more reliant on economic activity, which remains subdued despite the recovery. The cuts to sales were offset by currency revisions, particularly the stronger Euro.
We have also reduced our margin forecasts given the group’s overheads will be absorbed by fewer business lines. Meanwhile, GDP growth in the US and Europe has remained moderate despite hopes that recent political changes would provide more of a boost.
Post the sale of the condoms business, Ansell’s earnings are likely to more closely track the broader economy and we have lowered our forecasts accordingly.
Our forecasts make allowance for the impact of higher latex and nitrile prices in FY17 as per guidance provided in February. While the drop in these prices since March should provide a boost in FY18, we are wary it will make Ansell’s efforts to push through higher finished goods prices more difficult.
We expect Ansell to outline another round of restructuring with its full-year result in August. This will likely see the group address some stranded costs arising from the sale of the condoms division, along with plans to shift more manufacturing to Vietnam. These moves should deliver savings in time, but we expect the group to book some upfront costs in FY18.
The recent lift in the euro supported our sales forecasts despite underlying cuts. However, this was offset by a lift in cost currencies limiting the EBIT benefit.