ANN
The ANN result is not great. But nor is it as calamitous as the market is pricing either.
Mostly negative foreign exchange pressures, and the cost of exiting Russia.
It’ll work clear of the pandemic overhang that’s affecting the health segment, and the base business is a steady grower.
You can see the below FX and asset sales adjusted numbers “Organic CC”, which highlights margins and earnings are better than what they might seem at first blush.
The guidance change is from FY23 of US$115c-$135c to US$110c-$120c.
ANN trades at 15x and is “normally” a fairly defensive business. We are happy to look past the near term issues.
We’ll come back to this note after we’ve gone through the earnings call.
Update
ANN is indeed most of the way through, if the revenues of the Healthcare are any guide, having unwound the pandemic boom/boon.
Operating income is suffering from supply chain issues, firstly we see that the pandemic boom is unwound, secondly we see deterioration in the industrials segment.
Margin wise, that decreased profitability looks like the below. Not huge variation, but current numbers are pretty close to the historical bottom.
The key question on the call was “when will your margin go back up”, which is essential but neither is it insightful. Management see no long run impediments, but it is a “wait and see” / “trust us” type outcome.
Overall, ANN is a pretty decent, usually stable cash generator. So, we’ll stick with it, across our direct equity portfolios.
It seems clear we got hit with a value trap, and that the pandemic unwind had further to run than we thought, AND, that in addition to those pricing pressures, was getting hit with supply chain issues to boot, but, at $25, we will bottom draw it.
As always, whenever you make a mistake, as long as the balance sheet isn’t over-geared, you’ll probably come out the other side.
ANN’s balance sheet is strong, which will buy it time to muddle through.
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