Forecast Weakness in Industrials Leads to Small FVE Decrease for Ansell, FVE Cut 3% to AUD 33

We expect the current health crisis to evolve into a sustained economic downturn and consequently reduce our forecasts for narrow-moat Ansell’s industrial segment. The industrial business contributes approximately half of revenue and is closely linked to the global manufacturing cycle. Using U.S. and European Purchasing Managers' Indexes as an indicator, we revise our five-year revenue growth forecast for the segment to negative 2.1% from positive 3.6% prior. We reduce our fair value estimate to AUD 33, from AUD 34. The impact on stock valuation is muted by currency changes and expected softness in raw material input prices. Nitrile rubber is a key input, and as a byproduct of oil production, we expect oil price weakness and reduced industrial demand to lead to lower input costs for Ansell. We also expect cost relief from a weakened Thai baht to USD exchange rate. Our AUD 33 fair value estimate is based on an AUD/USD exchange rate of 0.59.