Broker snap: Genus sees growth from emerging markets

11th Nov 2010 12:21

KBC Peel Hunt is bullish on Genus, claiming the animal genetics company is well positioned to deliver strong growth.The group said that profits in the first four months of its financial year were "well ahead of last year", with the Americas showing a strong performance, particularly in the porcine genetics sector."Semen sales in China improved, but profits were held back by continued low pig prices", said the broker.Analyst Charles Hall notes that market conditions have improved, with pig producers enjoying good performances and milk producers starting to see better pricing."Higher feed costs will have an impact on farmer profitability in the short term, but future prices point to improving margins next year", Hall said.The period saw the group announce a commercial agreement with the only private stud in India, acquire a bovine production facility in Russia and achieve a government licence for its stud in China. "We expect the contribution from emerging markets to continue to increase from the current 30% of profits," the broker said.Major investment plans and strong underlying cash generation have seen net debt fall to £79.7m from £95.2m.Based on Peel Hunt's projected earnings per share for the year to June 2011, the shares are trading on a price/earnings ratio of 20.7, leaving "limited short-term upside" for the share price, "but the long-term story remains compelling," the broker believes.The broker has increased the target price to 900p from 800p.