Genus tough in the face of market shocks

Performance at animal genetics group Genus (GNS) has been hamstrung in recent quarters by volatility in the price of live pigs in China. But some signs of a sustained recovery were evident in the six months to 31 December, with revenue for the group’s porcine products division (known as PIC) increasing by 12 per cent. 

It’s now expected that prices will stage a full recovery in China this spring as supply normalises following the Covid-19 pandemic and outbreaks of African swine fever. Management did not, however, change previously issued profit guidance for the full financial year. 

“As ever with Genus there are a lot of moving parts, but a combination of Genus’s geographic diversification and continued shift towards royalties has helped iron out the ups and downs,” said Liberum analysts in a research note. 

Of these moving parts, investors might be most concerned about the increase in net debt to £215mn (from £185mn at the end of the group’s last financial year). Genus attributed the uptick to capital investments made throughout the course of 2022.

The group’s research and development (R&D) expenditure rose by 18 per cent in the six months to the end of last year, as it had previously planned. A significant portion of this spend was directed into a gene-editing programme that intends to produce pigs resistant to a virus known as PRRSV. It’s hoped that the Food and Drug Administration will give the animals its seal of approval next year.

Elsewhere, sales at Genus’ bovine products business grew 23 per cent year on -year, despite challenging conditions in the key South American market. 

The shares were up 10 per cent on the day of its half-year results, even in light of the announcement of CEO Stephen Wilson’s impending retirement. Resilience, it seems, will be rewarded. A cautious Buy.

Last IC View: Hold, 2,772p, 8 Sep 2022