Shareholders in leading global animal genetics specialist Genus (GNS) have been through a rough couple of years with the shares losing just under two-thirds of their value.

The fall can be attributed to a big derating in the shares which has seen the forward PE (price to earnings) ratio fall from 53 times to 24 times today, and huge swings in Chinese pig prices which have dented near-term demand for genetics services.

Despite these headwinds Genus’ pig business generated record operating profits for the year to 30 June as strong trading in the rest of the world offset a challenging second half in China.

Shares believes the derating has run its course while a key catalyst for the next stage of growth has yet to be fully appreciated by investors.

Genus is on the cusp of commercialising a game changing technology for the pig industry. Using its gene editing platform, the company has created pigs resistant to PRRS (Porcine Reproductive and Respiratory Syndrome). It is estimated that PRRS costs the US and European pig industry around $2 billion a year. There are currently no vaccines or effective treatments.

The company is hosting a capital markets day on 1 November when it will take a deep dive into the science behind the technology and outline its commercialisation plans.

On 5 October Columbia became the first country to approve future sales of PRRS resistant pigs. The company anticipates receiving US FDA (Food and Drug Administration) approval in the first half of 2024 with further approvals sought in Canada, China, Japan, Mexico, and Brazil.

Numis estimates a profit potential of between $1.50 and $2 per pig, which could add more than £140 million a year to operating profits once fully commercialised. In the 12 months to 30 June 2023 Genus generated £40.5 million of operating profit.

Despite trimming 2024 EPS (earnings per share) forecasts by 13% due to higher interest costs and foreign exchange headwinds Numis estimates Genus could grow EPS by a compound annual growth rate of around 16% a year over the next three and a half years. ‘With valuation multiples approaching a decade low we think the shares look attractive,’ the broker says.

Genus holds a dominant position in animal genetics forged by building proprietary breeding lines which allow farmers to breed animals with desirable pedigree traits.

The company helps farmers produce animals with higher quality milk, breed animals with high feed efficiency and give birth to larger litters. Genus does this for dairy, pig, and beef farmers worldwide. An expanding global population and increasing wealth are key drivers of animal protein consumption.

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