Genus well ahead of last year

11th Nov 2010 16:55

Animal genetics group Genus said adjusted profit before tax in the first four months of the current financial year was well ahead of last year, and in line with the board's expectations. The recent increase in animal feed costs has eroded short term profitability for many pig producers, but while some producers have become more cautious, the outlook for USA pig prices remains firm and most producers should continue to be profitable throughout 2011, the company believes. This should continue to drive the general improvement in demand that Genus has experienced.In the bovine sector, milk prices continued to be at acceptable levels in most markets and showed a modest improvement in the USA. Revenue for the four months to 31 October 2010 rose strongly. Porcine sales of breeding animals were significantly higher as customers returned to updating their genetics, particularly in the USA, and bovine volumes also increased.Profits in Europe were lower than in the same period last year due to the phasing of bovine sales in certain distributor markets. In the Far East, bovine prices in Australia improved as that market recovered and semen sales volumes in China increased. However, profits in the region were held back by poor performance by the porcine business in China where pig prices remained depressed.Net debt at the end of October stood at £79.7m, down from £95.2m a year earlier."Despite higher feed costs, we expect to continue to make good progress in the year ahead and fully to meet the board's expectations for the year," the company said.Broker Panmure Gordon said the statement firmly underpinned its belief that Genus will deliver more "normal" profits growth this year, "and despite the feed cost pressures the underlying business looks robust and we believe the risk to forecasts is on the upside.""With the heavy period of investment behind it, cash flow also looks to be strengthening, and net debt at £79.7m is c£15m lower than the same time last year. We are increasing our price target from 820p to 880p," the broker said. KBC Peel Hunt described the update as a "positive AGM statement". "There is limited short-term upside given the rating, but the long-term story remains compelling," believes Peel Hunt analyst Charles Hall. Peel Hunt's price target is 900p, up from 800p prior to the AGM statement.