ANN fell over -14% on Tuesday following a downgrade that took the stock to fresh 12-month lows, the downside momentum is looking likely to test/break its 2022 low which begs the question of where or if MM now have interest in ANN. The market has been aware of the company’s excess inventory issues for a while with customers no longer feeling the need to overstock protective products as COVID becomes a distant memory. However, yesterday’s downgrade was all around a mismanaged COVID boom and lack of smart re-investment in the likes of tech coupled with an unnecessarily complex operational structure for a relatively simple business model – they’re not the only company to have been caught behind the tech revolution but they may be one of the worst offenders with regard to blowing the COVID opportunity.
Investors now find themselves facing lower earnings in FY24 which will “hopefully” be recouped in years ahead as management cuts jobs, reduces production, simplifies the business and upgrades software & IT. It simply feels like an unnecessary risk and waste of time to hold ANN over the coming years to see if ANN can turn around years of inefficiency, especially when we consider what’s gone before i.e. the reason for the downgrade and underperformance over the last 2 years are entrenched.
We expect ANN’s earnings to be impacted by FX and yields but not by operational/organisational issues however, arguably the most damaging impact on Ansell’s share price yesterday was when on the earnings call with the CEO & CFO they didn’t answer specific questions around accrual changes later releasing this : “Incentive accruals at the half-year results reflected forecast business outcomes. For long-term incentive plans, which vest after three years, accruals had been adjusted downwards,” – the trouble is when you disappoint the market 100% transparency is a must.
- We see no reason to back ANN’s management at this stage, especially with a test of $20 feeling like a strong possibility – it’s cheap but it should be!
MM has no interest in ANN following its downgrade
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