5th Sep 2024 12:13
(Alliance News) - The latest annual report from Genus confirms "a challenging year", analysts say, but while the current backdrop remains "frustrating" the company's long-term prospects are brighter.
The Basingstoke, England-based animal genetics biotechnology company said revenue decreased 3.0% to GBP668.8 million from GBP689.7 million.
Pretax profit dropped 86% to GBP5.5 million in the year ended June 30, from GBP39.4 million the year before.
Adjusted pretax profit, meanwhile, decreased 16% in line with expectations to GBP59.8 million from GBP71.5 million. This excluded, among other factors, a GBP23.2 million decrease in the valuation of biological assets.
Genus said PIC, its global porcine genetics business which sells "genetically superior" pigs to farmers, increased its market share and profit in "a robust performance" in all regions outside Asia. However, PIC's growth outside China was "offset by poor China performances".
Genus kept its final dividend unchanged at 21.7 pence, leaving the full-year total likewise unmoved at 32.0p per share.
Going forward, Genus said market conditions are "stable to slowly improving", although "we remain cautious, particularly in China". It also expects "significant growth" in adjusted pretax profit at constant exchange rates, "in-line with current market expectations".
"Genus' full year results had something for both the bears and the bulls," commented Panmure Liberum analysts Seb Jantet and Julie Simmonds, who noted there were "no nasty surprises". "The bears are likely to focus on a potential six-month delay to US [PRRS virus-resistant pig] approval and a...downgrade to PBT.
"The bulls will however take comfort from the fact that the downgrade is entirely down to currency and that the US delay doesn't impact Genus' PRP commercialisation plans."
PIC, which developed the aforementioned PRRS-resistant pigs, "made good progress against what was a challenging backdrop, especially in China and the US with volumes up 3%, but revenue down 1% underlying."
"Royalty revenues were flat, but Genus did add 13 royalty customers in China and while it will take some time for these to start driving revenue, this speaks to an improved quality of revenue from China," Liberum added. "Margins were maintained, slightly better than the small decline we'd forecast."
Stifel's Christian Glennie and James Orsborne, meanwhile, said: "The last 3 years have been tough for Genus as pig prices in China have stayed depressed and more recently demand for dairy products have dampened."
However, they likewise noted: "Genus has continued to gain market share during this period and progressed its PRP to the verge of FDA approval."
Finally, Edison's Neil Shah commented: "Genus' results for FY24 reflect the challenges in the global market, particularly in China...However, the company made strategic progress that positions it well for the future."
Shah further noted that PIC's performance has been "resilient" despite "setbacks in China". "Regulatory advancements for the PRRS-resistant pig also signal potential growth opportunities," he added.
Looking ahead, Shah continued: "Genus anticipates significant growth in adjusted profit before tax in FY25, although currency fluctuations remain a concern.
"Overall, the strategic actions taken in FY24 should strengthen Genus's long-term profitability and position it to capitalise on improving market conditions."
Shares in Genus were trading 1.9% lower at 1,759.13 pence in London on Thursday afternoon.
Panmure Liberum reaffirmed its 'buy' recommendation for Genus, with a target price of 2,800p per share.
Jantet and Simmonds explained: "Our investment case is based on our view that improving agricultural markets will drive short-term performance, and that PRP will drive medium-term performance...our view remains unchanged."
Stifel, meanwhile, reaffirmed its 'buy' recommendation with a 2,940p target.
"With the shares at levels last seen in 2017, we believe now is a good entry point into a quality business with recent guidance for FY25 pitched at levels we believe are achievable," Glennie and Orsborne said.
By Emma Curzon, Alliance News reporter
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