We recently researched Ansell (ASX:ANN) in The Dynamic Investor as a review the fundamentals following the release of results for the six months to 31 December 2025 (1H26). We took a NEUTRAL view on the shares. The key reasons for this included the high risk of downgrades to EPS guidance and uncertainty regarding the strategic direction of the Company under a new CEO.

Since our report, the shares have declined by ~9%. Do current levels present a more attractive entry opportunity? Or is it best to remain on the sidelines?

About Ansell

Ansell operates two divisions:

• The Healthcare division manufactures and markets surgical and exam gloves for healthcare and industrial applications. Its customer base in the medical vertical includes acute care hospitals, emergency services, alternate care, dentistry and veterinary clinics.
• The Industrial division manufactures and markets hand and upper arm protective solutions for a spread of industrial applications. ANN provides gloves with three specific purposes including mechanical, chemical & liquid, and product protections across several industries.

On 8 April 2024, ANN announced that it has entered into a binding agreement to acquire 100% of Kimberly-Clark’s Personal Protective Equipment business (renamed as ‘KBU’) for US$640m. KBU designs and markets differentiated hand, body and eye protection products under Kimtech and KleenGuard brands.

Key Fundamental Drivers

Slowing Organic Revenue Growth

Benefits from the Accelerate Productivity Improvement Program (APIP) and the Kimberly-Clark acquisition will be fully captured by the end of FY26. As these benefits fade, the earnings outlook will increasingly depend on organic revenue growth.

Price increases implemented in 1H26 have offset higher US tariffs. However, sales growth was constrained by subdued market conditions, particularly in the automotive and chemicals industries and in emerging markets. Overall, volumes were broadly flat. This reflected share losses in lower-margin single-use/exam gloves and subdued end-market conditions.

Are Margin Headwinds Looming?

EBIT margin expansion is expected to be underpinned by two factors: i) A shift in the portfolio composition toward structurally higher growth/margin end-markets (i.e. Defence, Energy Transition), and ii) A full-year contribution from strategic initiatives (synergies, cost-out measures, freight/sourcing benefits).

However, we consider that there are key risks to EBIT margin expansion in FY26/27:

i. Higher natural rubber latex (NRL) and nitrile prices. There is typically a delay of ~3-4 months in the pass-through of higher raw materials costs and while the Company has demonstrated its ability to pass tariff-related costs onto customers, there may be an impact to margin given that ANN may not be able to fully pass on higher raw material costs given the recent pass-through of higher tariffs.
ii. Employee cost inflation also persists in key manufacturing locations, including additional social compliance costs.
iii. The strengthening in key cost currencies (Malaysian Ringgit (MYR) and Thai Baht (THB)) remain a headwind. Having said that, the MYR has continued to strengthen relative to the US$, while the THB has recently weakened (but remains above the average level for FY25).

Gearing at Lower End of Target Range

Gearing (on a net debt/EBITDA basis) has declined faster than expected at the time of the KBU acquisition. As at 31 December 2025, gearing was 1.5x, down from 1.6x as at 30 June 2025. The current gearing level is well below the target to reduce gearing below 2.0x within 12 months post completion of the KBU acquisition. It is also at the lower end of the targeted gearing range of 1.5-2.0x.

The balance sheet now has substantial headroom within debt financial covenants. This factor, combined with strong liquidity and cash generation, provides financial flexibility to fund a combination of internal investments, Merger & Acquisition opportunities and capital management. To this end, the current share buyback program is continuing, with a target to complete a US$200m share buyback by the end of FY26. Completion of the share buyback would keep gearing at the lower end of the targeted gearing range of 1.5-2.0x (assuming all else equal).

Fundamental View

ANN shares are currently trading on a 1-year forward P/E multiple of ~12x (from ~13.5x at the time of our report). The current multiple is not overly demanding in the context of an EPS growth profile of +9.5% over FY25-28 on a CAGR basis, as well as its post-COVID average.

Notwithstanding the recent weakness in the share price, the high risk of downgrades to EPS guidance remains. In particular:

i. End-customer demand in certain verticals and geographies remaining subdued, with organic growth slowing. Notably, deteriorating conditions in the emerging markets component of the asset portfolio are likely to offset more stable conditions in developed countries.
ii. Higher raw material costs and unfavourable currency impacts.

Charting View

Ansell shares remain in a downtrend. When they broke under support near $30 earlier this year, the stock tried to rally but it failed to overcome that old resistance line. Momentum still looks weak and the risk remains to the downside.

 

Michael Gable is managing director of Fairmont Equities.

 

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