Contrarian Gems on the ASX: Why Ansell and Regal Partners Offer 40%+ Upside

In a market oscillating between optimism and caution, contrarian investors often find opportunities in stocks overlooked by the herd. Two Australian firms—Ansell (ASX:ANN) and Regal Partners (ASX:RPL)—currently trade at discounts of 40–48% to their intrinsic values, according to discounted cash flow (DCF) analyses. These valuations suggest the market is underestimating their growth potential, while ignoring catalysts such as margin improvements, dividend discipline, and strategic repositioning. Let's dissect why these could be prime contrarian buys.

Ansell (ASX:ANN): A 48% Discount on a Latex Giant

Ansell, a leader in personal protective equipment (PPE) and medical supplies, is trading at AU$29.34—a 48% discount to its DCF-intrinsic value of AU$56.40. This stark undervaluation arises from short-term concerns about macroeconomic slowdowns and raw material costs, which have overshadowed its structural strengths:

DCF-Backed Catalysts

• Margin Expansion: Ansell aims to boost EBIT margins by 200–300 basis points through productivity initiatives like its Accelerated Productivity Investment Program (APIP), which targets AU$45 million in annual savings by FY2025.
• Portfolio Rationalization: The company is divesting non-core assets (e.g., its consumer health division) to focus on high-margin segments like industrial safety and advanced medical solutions.
• Debt Flexibility: With net debt at 0.5x EBITDA, Ansell has room for share buybacks if undervaluation persists.

Growth Tailwinds

• Industrial Recovery: Post-pandemic demand for industrial gloves remains robust, driven by sectors like construction and manufacturing.
• Healthcare Demand: Aging populations in developed markets are boosting demand for medical-grade PPE.

Risks to Monitor

• Raw Material Volatility: Nitrile and latex prices could squeeze margins, though Ansell mitigates this via vertical integration and long-term supplier contracts.
• Regulatory Headwinds: The EU's crackdown on single-use plastics poses a risk, but Ansell's R&D focus on recyclable materials may offset this.

Regal Partners (ASX:RPL): 40% Undervalued, 8% Yield, and Insider Buying

Regal Partners, a hedge fund sponsor with a 8.06% dividend yield, trades at AU$2.48—40% below its average analyst price target of AU$4.17. Its DCF-like valuation multiples (e.g., P/E of 12.59 vs. its five-year average of 15) suggest the market is undervaluing its asset-light business model and dividend resilience:

DCF-Driven Strengths

• Dividend Discipline: Regal targets a payout ratio of 50% of normalized NPAT, with fully franked dividends (e.g., AU$0.10/share in March 2025).
• Low Leverage: Its EV/EBITDA of 0.13 signals strong profitability relative to its enterprise value.
• Insider Confidence: Key executives like Chairman Michael Cole have been aggressive buyers, purchasing 64,830 shares at AU$1.08 in April 2025.

Growth Catalysts

• Diversified Portfolio: Regal's exposure to high-growth sectors like technology and healthcare aligns with long-term trends.
• DRP Opportunities: Its Dividend Reinvestment Plan (DRP) offers shares at discounts (e.g., AU$3.01 in March 2025), enhancing long-term compounding.

Risks to Consider

• Sector Volatility: Its beta of 1.56 means its stock swings sharply with the market.
• Short Interest: While low at 0.54% of float, sudden short-covering could amplify price swings.

Why Now? Contrarian Investing at Its Best

Both stocks are victims of market myopia:

• Ansell is penalized for macro fears, but its DCF assumes only 2.7% terminal growth—well below its historical 15–20% earnings growth. A stop-loss at AU$25 could protect against further downside.
• Regal Partners faces skepticism over its hedge fund model, yet its dividend yield and insider buying signal confidence in its ability to navigate cycles.

Investment Thesis: Buy for Long-Term Upside

Ansell (ASX:ANN):
- Buy Below AU$30, aiming for a 12-month target of AU$42 (43% upside).
- Hold for: 1–3 years to capture margin expansion and portfolio shifts.

Regal Partners (ASX:RPL):
- Buy Below AU$2.50, targeting AU$4.17 (70% upside).
- Hold for: 2–5 years to benefit from dividend compounding and valuation reversion.

Final Word

Both stocks embody contrarian principles: they're cheap, unpopular, yet anchored by durable cash flows and catalysts. While risks like macro volatility and regulatory changes exist, the discounts embedded in their prices reflect overreactions. For patient investors, these are buy-and-forget candidates with asymmetric upside.

Disclosure: The analysis is based on public data as of June 2025. Always conduct your own research before investing.