- First half profits fall 30%
- Full year guidance downgraded
- Shares plunge to five-year low
Testing times continue for shareholders in Genus (GNS), the animal genetics specialist’s stock plunging 26% to a five-year low of £15.72 on a warning annual profits will disappoint due to low pork prices and weak bovine volumes in China denting demand for genetics services.
Basingstoke-based Genus now expects adjusted pre-tax profit for the year to June 2024 will be ‘not less than £58 million’, which is some 20% below the £73 million previously called for by consensus.
30% PROFITS PLUNGE
The animal genetics leader helps farmers produce animals with higher quality milk, breed animals with high feed efficiency and give birth to larger litters.
Genus does this for dairy, pig, and beef farmers worldwide with the expanding global population and increasing wealth being key drivers of animal protein consumption.
While the FTSE 250 company called out a resilient performance for the half to 31 December 2023 amidst ‘challenging market conditions’, adjusted pre-tax profits of £29 million represented a significant 30% year-on-year fall.
Excluding China, Genus’ PIC (Pig Improvement Company) business performed robustly, growing operating profits in North America, Latin America and Europe.
‘China continues to be a challenging porcine market,’ lamented management, ‘however our enhanced commercial focus has resulted in winning new royalty customers in the period which will positively impact fiscal year 2025 and beyond’.
First half volumes decreased 6% in the ABS (American Breeders Service) division with demand for dairy genetics in China impacted by a double-digit decline in the dairy herd, although Genus is reducing costs in the bovine business which should deliver significant savings.
PRP APPROVAL DELAYED
Using its gene editing platform, Genus has created pigs resistant to PRRS (Porcine Reproductive and Respiratory Syndrome) in what could be a game-changer for the pig industry.
Unfortunately, Genus also warned of a six to 12-month delay to final approval of the PRP (PRRS Resistant Pig) programme as the US Food and Drug Administration’s post-approval compliance team has requested additional data submissions, although there is not change to the timing of commercialisation because Genus had built contingency into the timetable and approvals in other regions should be delivered on time.
WHY PEEL HUNT REMAINS BULLISH
Following the earnings alert, Peel Hunt downgraded its year-to-June 2024 pre-tax profit forecast by 21% to £58 million and lowered its 2025 estimate by 8% to £80 million.
‘A shortfall is not surprising given the first half outcome,’ explained the broker, ‘however the scale is surprising. Weakness in the shares provides a buying opportunity in our view.’
Peel Hunt reduced its price target from £45 to £35, although it reiterated its bullish rating on the shares.
‘Genus continues to take share in its key markets and there is clear progress on accelerating royalty revenues in China,’ noted analysts Charles Hall and Andrew Ford.
‘The nature of royalty contracts is that the initial profit contribution minimal, but payments build as the number of weaned piglets under royalty contract grows. This not only provides confidence in the longer-term potential of PIC China, it also means that the business will be more insulated from the pricing cycle.’
