Animal genetics company Genus (GNS) reported record first-half profit yet failed to enthuse investors after the stock’s 25% rally in 2021.
The FTSE 250 company reported a 32% jump in adjusted pre-tax profit to £48.4 million for the first half to 31 December 2020, on revenues that grew 11% to £285.7 million. The results should come as no surprise following raised guidance in an unscheduled January trading update.
Yet the stock slumped nearly 7% to £48.86 after Genus warned of slower growth in the coming months.
‘In the second half of the 2021 fiscal year we expect that growth will be lower and there are increased currency headwinds’, the company said. However, Genus talked up its ‘significant growth opportunities’ as it maintained expectations for the full year.
STRONG BUSINESS MOMENTUM
Strong growth in operating profit was achieved in both the Bovine (ABS) business, up 37% to £18.7 million and the Porcine (PIC) business, up 17% to £68.9 million.
The restocking of pig herds in China following an outbreak of African Swine Fever (ASF) in 2019 continued, helping China profit to grow 56%.
Chief executive Stephen Wilson told Shares that the tragic loss of the pig herd and current restocking has created a step change in the market with rapid industrialisation of the pig farming industry in two years.
This has resulted in large scale pig farmers continuing to take share and now represent around a third of the market, up from 10% before ASF, increasing demand for the superior genetics that Genus provides. The company serves around a third of the top 50 producers and continues to win new business.
In Bovine the adoption of the company’s Sexcel dairy product which enhances milk production and the NuEra beef which increases beef yield both saw increased traction with volumes growing 42% and 22% respectively.
CASH GENERATION
Genus generated £45 million of cash from operations in the first half, converting 100% of operating profit and contributing to record free cash flow of £26.6 million, helping to reduce net debt to £92.2 million. This represents 0.8 times EBITDA (earnings before interest, taxes, depreciation and amortisation).
As a result of strong earnings and cash flow the board recommended a 10% increase in the interim dividend to 10.3 pence per share.
The company plans to invest significant capital expenditures to support expansion of ‘best in industry’ farm facilities for PIC and ABS.
Genus expects lower second half growth and increased currency headwinds but continues to see ‘significant’ growth opportunities.
