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
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
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
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
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
Along with doubts over crop sowings, this represented "the
major area where people had questions" over Outlook forecasts, Mr Nelson told
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
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
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.
On the markets, Panmure Gordon restated a "sell" rating on Genus
"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.