Genus shares in a trough as sales volumes slide

When investors know to expect bad news, even a lacklustre set of results can put their minds at ease. This explains why Genus (GNS) saw modest share price gains after it reported a 26 per cent fall in adjusted pre-tax profit for the six months to 31 December. 

The animal genetics group, which specialises in bovine and porcine solutions, flagged issues with its performance in China earlier this month. Falling sales in the country weighed especially heavily on profits in the pig (PIC) business. Despite growth of 5 per cent across the rest of the world, the division’s adjusted operating profit ended the half down 10 per cent year on year. 

Management is optimistic about a recovery in PIC, thanks in part to a royalty payment model that is designed to limit cyclical risk. “China continues to be a challenging porcine market, however enhanced commercial focus is delivering results,” said Genus CEO Jorgen Kokke. “New royalty customers were signed in the first half which gives us more confidence that our sales approach is effective.”

Meanwhile, trading conditions were universally difficult in the beef and dairy (ABS) segment, where volumes decreased 6 per cent and adjusted operating profit fell by 15 per cent. As stated in the trading update, Genus expects its FY2024 adjusted profit before tax to be at least £58mn. Analysts had previously been banking on a result in the region of £70mn. 

Macro conditions make it likely that Genus will struggle to regain lost ground in the coming months. But there could be positive developments on the horizon in the form of a disease resistant, gene-edited pig. The US Food and Drug Administration (FDA) is expected to approve the animal for introduction into breeding stock next year. Until then, we think it’s wise to hold.

Last IC View: Buy, 2,132p, 7 September 2023