Ansell (ASX:ANN): More volatile than you’d expect for a PPE maker

Ansell (ASX:ANN) makes latex PPE (Personal Protective Equipment), particularly gloves. Latex gloves are no bottles of Dom Perignon, but they are often essential and you might think they are ‘recession-proof’, and so this company should only be going in one direction…up. In reality, its more complicated than that, although the company is in better shape than it was a couple of years ago.

Overview of Ansell and its turbulent recent past

Ansell purports that 10 million workers in over 100 countries use their goods. It has its headquarters in the inner Melbourne suburb of Richmond but has factories all over the world – the largest of which are in Malaysia, Sri Lanka and Thailand.

The pandemic was a good time to be in PPE. Demand ramped up and it was easy to ramp up supply from the very beginning. Ansell’s sales surged from US$1.5bn in FY19 to over US$2bn in FY21. Enough said.

But as the pandemic subsided, sales retreated to pre-pandemic levels. And the company had a glut in supply that was only able to be cleared via discounting. But the company took further action including cutting 10% of staff and introducing automation in some of its factories. In April 2024, it raised $400m to buy Kimberly-Clark’s PPE business (the Kimtech and KleenGuard brands which make Kleenex tissues and Huggies nappies) for US$640m/A$974m. The company promised US$10m in synergies by the third year.

At its FY24 results, the company declared the job was ‘90% complete’ with the job cuts and inventory glut. While it reported a 2% drop in revenue to US$1.6bn, this was modest compared to previous drops, and it reported a profit within its guidance range even though it was US$76.5m (only half of FY23). 1H25 saw further progress – the company grew its sales by 12.5% and its ‘adjusted profit’ by 34%. But, there was trouble on the horizon.

Trump’s tariffs could be a new headache

Trump’s return to the White House meant the global trade order was under threat again. At that time, the only concrete proposal was a 10% tariff on US imports from China. Ansell promised to shift some manufacturing out of China and to spread its production more evenly. Although it has production in China, very few of it gets sent to the US and so investors were soothed by promises that any such production would be shifted to Sri Lanka.

But Liberation Day in April saw tariffs imposed left right and centre, including countries that investors thought would be exempt. If Ansell had no business in the US, Trump’s tarriffs would have been no problem. Yet, Ansell does have business in the US and it generates 43% of revenue. Whilst no country supplies over 30% of imports, just about all countries Ansell makes PPE in were meant to be subject to tariffs. Ansell told investors it would offset these tariff increases by pricing and asserted customers would pay because local US production was negligible.

Only time will tell if this is right, but the company maintained its FY25 EPS guidance of US$1.18-1.28 (12-18% higher than FY24). So clearly Ansell thinks if there’ll be any hit, it won’t be until FY26. There has not been an update since early April, but the company will inevitably have more to say at its full year results which are due at the end of August.

Analysts clearly believe suppliers will just ‘pay up’. Their mean target share price is $35.39, up 17% from the current place and even the ‘lowest’ estimate is a modest premium of $31.71 with the highest being $39.85. Analysts expect Ansell to hit the mid-point of its EPS guidance (US$1.23) then record US$1.36 in FY26 and US$1.48 in FY27. They expect $2bn in revenue in FY25, then $2.2bn in FY26. The company’s P/E is just 14.7x for FY26 and its EV/EBIRDA 9.3x, but its PEG multiple is 1.6x.

Conclusion

The fate of Ansell in the months ahead clearly hinges on whether or not its thesis that customers will just pay higher prices will come true. There is optimism to believe this will be the case, but the only certainty is uncertainty with Trump in the White House.

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