■ Food prices helping demand
■ Management reveals new strategy
■ Net debt unchanged
The operational side looks as solid as ever, too, with farmers in Asia taking advantage of better prices to stock up on genetic material for their herds. Even in developed markets, such as North America, pork has made a comeback - volumes there were up 10 per cent, leading to a similar rise in royalty income. Europe saw slightly better pork prices, too, and the company experienced a more stable market in Germany. However, that won't stop a reorganisation of the business to focus more on large-scale producers - at an expected cost of £1m-£2m.
Meanwhile, the company's net debt at the end of April was reported as being at a similar level to the end-year figure - despite higher working capital requirements.
Morgan Stanley says...
Overweight. Our bull case valuation - at 1,790p - assumes that Genus meets its aspirational earnings growth target of 15 per cent year on year throughout the decade. But there are strong global themes to drive that thesis. These include population growth and rising food demand, industrialised farming methods and sector consolidation among food producers, as well as emerging markets growth, coupled with a shift there towards western-style diets - that is, more dairy and meat consumption. Expect EPS to rise to 52p for the year to end-June 2012, from 44.1p in 2011.
Peel Hunt says...
Buy. The share price rating does look full, but the longer-term growth opportunity remains compelling. Genus is the global market leader in this business and is increasing its competitive advantage. In fact, the company boasts a number of strategic advantages, such as its genetic lead and international presence. Moreover, research and development initiatives provide the opportunity for step-changes in market share and profitability. Genus looks increasingly well positioned to take advantage of growth opportunities. The price target stands at 1,500p and expect adjusted EPS for end-June 2012 of 50.8p.
Genus is a high-quality company with plenty of long-term growth opportunities. The problem is that the shares, at 1,427p, trade on a punchy 28 times Peel Hunt's forecast earnings - which leaves those opportunities looking well factored in for now. A prospective yield of around 1 per cent isn't much to get excited about, either. Hold.
Last IC view: Hold, 1,126p, 21 Feb 2012
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