Ansell has announced that it will be selling its Sexual Wellness division to China-based Humanwell Healthcare and private equity firm CITIC Capital for US$600m (US$529m after tax).
The condom, lubricant and devices manufacturing operations earned revenue of $190m in 2016 and $38m in earnings before interest, tax, depreciation and amortisation (EBITDA). That suggests an enterprise value to EBITDA ratio of 21 at current exchange rates – a pretty lofty valuation given that the division has barely grown in five years. Better yet, Ansell will retain ownership of its valuable polyisoprene intellectual property and then licence it to Humanwell for use in the division’s flagship SKYN brand of ultra-thin condoms.
The sale is expected to complete by the end of September, allowing management to focus on its three larger glove and medical supplies divisions.
Using the proceeds, the board has approved a share buy-back for up to 14.75m shares – roughly 10% of the total – which is worth around $356m at today’s share price, though chairman Glenn Barnes added that the company had a 'preference for value accretive [mergers and acquisitions] that can generate attractive returns’.
At today’s share price, and given the lack of reinvestment opportunities, we think this is sound capital management and will contribute to higher earnings per share growth. With an underlying forward price-earnings ratio of around 18, we’re sticking with HOLD.
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Disclosure: The author owns shares in Ansell.