PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 12:36 UK, 25th Feb 2014, by Agrimoney.com
Pig virus fears send Genus shares to two-year low

Genus shares fell to a two-year low after the genetics group highlighted the setback posed by the "accelerating" spread of porcine epidemic diahorrea virus, which some investors believe could prove more devastating than officials forecast.

Genus shares, which had already underperformed London stocks by some 10% this year, tumbled 7% to 1113p in early deals in London, their weakest since February 2012.

The decline followed the group's release of results which, while showing a 4% rise in earnings per share to 24.6p, in line with expectations, unveiled dual "headwinds" of rising sterling and the spread of porcine epidemic diahorrea virus (PEDv) through the North American hog herd.

"There is an increased risk to near-term results from the impact of PEDv on producers," Genus said, noting that the disease "has been spreading rapidly".

'Continuing to accelerate'

Indeed, the group said that "it is estimated that 30% of the US sow herd has now been infected, and the pace of outbreaks is continuing to accelerate".

Manitoba, Canada's main pork producing province, revealed its first cases last month of the virus, which has a high fatality rates among piglets, restricting weight gains in older animals.

In the US, farm officials have forecast a 2.5% rise in domestic piglet production this year, and a 1% rise to 23.4bn pounds in pork output.

However, US Department of Agriculture analyst Shane Shagam last week acknowledged that "as a result of PEDv, there is considerable uncertainty in this year's hog forecasts".

The USDA's estimates assume "that there is slight increase in the second half pig crop as producers respond to good returns by increasing farrowings in the second half of the year to compensate for piglet death loss", he told the department's key Outlook conference.

'Slow in coming'

However, many observers believe that PEDv will cause more severe damage than the USDA is factoring in, Rich Nelson, chief strategist at Allendale, said.

Along with doubts over crop sowings, this represented "the major area where people had questions" over Outlook forecasts, Mr Nelson told Agrimoney.com.

Indeed, some commentators have criticised the level of data over the spread of PEDv, with Paragon Economics and Steiner Consulting warning that "information regarding the spread of the disease has been slow in coming and not specific enough to allow market participants to have a good understanding of the potential scope of the economic impact.

"We would have thought that given the potential negative economic impact on producers, USDA and local governments would have figured out a way to implement a more aggressive system of monitoring the disease," the group said, noting that PEDv is in Alberta, Canada classified as a notifiable illness.

'Increased competitive pressure'

In the June-to-December period last year, Genus's PIC pig genetics business reported underlying profits up 6% at 25.1m, on revenues up 13% at 72.9m, despite the initial phase of the PEDv outbreak.

North American profits had risen by 2% on volumes up 7%, although this lagged the 25% jump in profits in Latin America, growth spurred by acquisitions.

The group noted a far weaker performance in its Asian division, where revenues fell by 14% to 24.4m and operating profits tumbled by 45% to 3.8m, dragged lower in particular by China, a country in which Genus is focusing growth efforts.

In cattle genetics, Genus faced "increased competitive pressure" in China, where it also faced costs from the launch of joint ventures in pig genetics.

Market reaction

On the markets, Panmure Gordon restated a "sell" rating on Genus shares,

"The degree of uncertainty over the impact of PEDv in North America is concerning and is further compounded by recent sterling strength," Panmure analyst Damian McNeela said.

VSA Capital said that, even after the underperformance in Genus shares so far this year, the stock was still trading on "fairly punchy" multiples of 22.2 times this year's earnings, and 14.3 times earnings before interest, tax, depreciation and amortisation (ebitda).

The shares recovered ground to stand at 1185p in lunchtime deals, down 1.1% on the day.

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