Ringing the Changes

Ansell is to hold a Capital Markets Day on Monday, 23 October. Ord Minnett views this as an opportunity for the company to explain its Transformation Program, including the promised US$30m of cost savings, and to reiterate the group’s strategy.


We would like to see the following topics and issues addressed:


  • Details on how management will deliver the cost savings in the Transformation Program have been scant to date. We will look for a more thorough explanation of the measures that will be taken to achieve these savings.
  • Our analysis shows that cost savings from past restructuring initiatives have fallen short of targets. Gaining a better understanding of what went wrong in previous efforts, and how these will be avoided in the current program, would lift confidence in management's ability to deliver.
  • In addition to investments in manufacturing and technology, Ansell has made raft of acquisitions since 2010. We would like to see additional detail on the returns generated and synergies delivered by these acquisitions, as distinct from its other investments.

Ahead of the investor day, we have reassessed the potential benefits and adjusted our earnings estimates to allow for what is expected to be relatively low-risk cost-cutting in FY18.


The net impact of these changes has been a minor lift in our FY18 forecasts, but if the full benefits of the Transformation Program are realised, our EPS estimates would increase by 3–6% in FY19 and FY20. This, in turn, would underpin two years of double-digit EPS growth. Consensus estimates, however, appear to make limited allowance for the expected earnings boost, but we see potential upside if management is convincing.


With FY18 earnings expected to be weighted to the second half, due to the impact of higher commodity costs and the offsetting price increases, the company is likely to merely confirm the group is tracking to plan for the first quarter at the upcoming AGM on Friday, 20 October. Given the wide guidance range, however, management may lift the lower end.


We have raised our target price for Ansell to $25.50 from $21.40 and, given the potential upside this implies, we have upgraded our recommendation to Accumulate from Hold.

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