One of the stocks selected for our inaugural NAPS Australia and New Zealand portfolio was Ansell (ASX:ANN). Since the start of the year it has risen 1.7% which compares with 6.5% for the S&P/ASX 200 index.
To recap, Ansell is classified as a Health Care stock based on the fact that the majority (61%) of its revenue is derived from the sale of personal protective equipment (PPE) into the health care sector. The balance comes from the sale of safety equipment, gloves and other protective wear, into industrial applications.
Ansell’s revenue and profits surged in 2021 as demand for personal protective equipment (PPE) surged, but retracted in 2022 as the COVID emergency began to abate.
Ansell has long been considered a well run business that operates in a challenging environment. This is reflected in its Quality score of 93. The Health Trend, Bankruptcy Risk and Earnings Manipulation Risk are all key contributors to the Quality score, and as you can see they are all in the green.
The quality of the franchise is strong as demonstrated by the profitability ratios, margins and cash flow.
Long term return on capital employed is above 10% and the five year average net profit margin is above 9%. Gross margins average in the mid to high 30s. These are good results in an industry that is highly commoditised. Some of the products Ansell produce are differentiated based on their quality but there is less room for differentiation in products like surgical gloves, so competition keeps margins tight.
The balance sheet is strong with a net debt to assets ratio of only 11.3%. They built up excess inventory during the pandemic which with the benefit of hindsight was too much. It will take a little while to run that down which will have a short-term impact on profitability.
The Stockopedia quality score is designed to be more predictive than descriptive. A business that scores well on the quality metrics has the underlying strength to push through difficult times and prevail where competitors may fall by the wayside.
Perhaps surprisingly, the last 12 months have indeed been a difficult time for Ansell. Some of the investment decisions made during 2021 were…
