One stock we had to get our hands on
During reporting season, we were quick to build a new position in a company after seeing a much stronger result than we had forecast in our research. A large cash holding allows Montgomery Investment Management to be nimble when opportunities present themselves.
So, the new addition to the Montgomery Private Fund and The Montgomery Fund is Ansell (ASX: ANN).
Ansell is a global manufacturer of protection solutions, primarily specialising in gloves for customers in the Industrial, Automotive and Life Sciences sectors. Having aggressively pursued acquisitive growth in the past three years, the company is beginning to see meaningful benefits that have now accumulated to be the largest player in the market.
Ansell’s largest acquisition was BarrierSafe International in 2014, which sells the leading single-use glove in the United States. Unlike Ansell, BarrierSafe outsources manufacturing, which provides the company with new initiatives to optimise along the supply chain. Furthermore, BarrierSafe’s sales have been isolated to the United States’ market, which means that meaningful revenue synergies can be provided through Ansell’s global sales force.
We are particularly attracted by Ansell’s focus on its core products, which comprise around 50 per cent of sales. By rationalising non-core products, the company can better leverage its manufacturing facilities and the sales force can deliver a stronger brand to the end user. But it’s not just acquisitive growth that is driving the company’s improved performance. Organic growth is returning after new product development initiatives from prior years begin to present themselves in the market.
We expect Ansell will achieve meaningful margin expansion in the coming years. This will primarily be driven by operational efficiencies, as the company continues to invest around $60-$70 million each year to reduce working capital with lean manufacturing initiatives and technological innovation. Margins should also be favourably impacted by the falling oil price.
When the company announced their financial results in the first-half of 2015, Management commented that cash flows have been stronger than expected. This positions the company well for further deals, however Management has noted that they are not dependent on acquisitions in order to grow.
With the market continuing to favour quality companies, it is rare to find investments that are trading at deep discounts to our estimates of intrinsic value. While Ansell is not an exception to this dynamic, we feel it has provided a sufficient margin of safety to take a meaningful position in both the Montgomery Private Fund and The Montgomery Fund.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Guest
:
Given the 2015 annual results announcement and the 20% sell off, does the Montgomery see this as an opportunity to increase it’s holding?
The underlying business units seem to have performed well but somewhat failed to live up to the market’s expectations, I believe ANN has put this down to adverse currency movements.
Kerrod Thomas
:
Great article Ben. I spotted ANN using the approach outlined in Rogers book and picked up a few shares myself. It’s nice to know that great minds still think alike.
Roger Montgomery
:
Be sure to seek and take personal professional advice. Keep in mind we can change our mind at any time and we may not inform anyone of our decision to sell.