Heroic, Dancer, Arabia. Not, as they might sound, the names of champion thoroughbred racehorses but prime dairy bulls, displayed in a glossy brochure for the perusal of cattle farmers.
Their owner, FTSE 250 firm Genus, has grown by breeding and selling superior pigs and cattle, and offers top-quality bull sperm to livestock producers.
As the world’s consumption of protein has soared, so farmers have been searching for efficiency and scale to boost profitability.
Today, Genus has a market share of 24% for pigs, and 8% for dairy and beef cattle.
Unlike some of its smaller rivals, Genus is developing gene-editing technology to alter DNA and breed disease-resistant herds that can improve yields.
The biggest shift in Genus’s fortunes will come from China, currently in the grip of the coronavirus crisis.
African swine fever had already hit the country, with the result that, late last year, China revealed 40% of its pig population had been lost — hundreds of millions of animals. The result was a chronic shortage of pork and therefore rocketing prices. Beijing was forced to dig into its emergency reserves. The average person in China — population 1.4 billion — gets through 30kg of pork a year.
Now, China will be looking to rebuild its pig population, and Genus has increased its exposure to the Chinese market. Shares in the company have risen 18.3% in the past six months in anticipation of its role in rebuilding pig stocks.
It already has a collaboration agreement with Chinese rival Beijing Capital Agribusiness (BCA) to research and breed pigs that will be resistant to porcine reproductive and respiratory syndrome. If it wins approval to breed its disease-resistant pigs — by 2023 at the earliest — it will form a joint venture with BCA; the two will also work on African swine fever.
Genus received $20m (£14.9m) up front and will potentially receive between $120m and $160m in future payments.
Genus will report half-year results on February 27. Stifel, a broker, is expecting it to deliver sales of £255.8m, an increase of 2.4% year-on-year.
The share price dipped slightly last week — down 2.9% to £30.80, valuing the company at £2bn. The test here is valuation. The shares have been on a solid run for the past six months. That makes them expensive — given how the coronavirus outbreak is likely to cause more disruption.
Stifel has a £29.50 target price on the stock, claiming that it struggles to see significant upside potential at the moment.
Avoid.
