January 2025 is almost over and the year’s first FTSE 250 winner is clear – global animal genetics specialist Genus (LSE: GNS).
Its shares surged nearly 24% last month, a remarkable turnaround after three tough years that saw them halve in value. Even after this rally, they remain down 18% over 12 months.
I’ve never analysed this stock before, so I’m coming at it fresh. What’s driving Genus, and is it too late to jump on board?
Can the Genus share price thrive in February too?
The catalyst for Genus’s revival was its half-year trading update on 15 January. The board reported strong performance in the first half of its financial year, with adjusted profit before tax expected to hit at least £35m, ahead of market expectations. Full-year profits should now be at the top end of analyst forecasts.
The group’s PIC division, which focuses on pig genetics, exceeded expectations in both the Americas and Asia. That’s particularly encouraging given weak Chinese sales in recent years. Meanwhile, its cattle-focused ABS division met expectations, helped by efficiency improvements from the company’s Value Acceleration Programme.
Genus’s PRRS-resistant pig programme also looks promising. This gene-editing technology, designed to combat a costly virus in the pork industry, is progressing through regulatory approvals. If commercialised, it could be a game-changer for Genus and the global livestock industry.
One issue is that Genus shares aren’t cheap, trading on a price-to-earnings ratio of 29 times. That’s roughly double the FTSE 250 average.
Investors clearly pay a premium for growth potential, and many are happy to do so. Another downside is the modest 1.7% dividend yield, which won’t attract income seekers.
Paying a high valuation for a company with such potential can make sense. Genus has a competitive edge in a niche industry with strong global demand.
While recent results are encouraging, risks remain. The Chinese market is still uncertain. Although PIC’s performance in Asia has improved, past struggles due to weak pork prices highlight potential volatility.
I’ll leave this little piggy for now
I already have exposure to China through miners like Glencore and luxury brands Aston Martin and Burberry. These stocks have all been hugely volatile, to put it mildly, and I’m unsure that I need more China-related risk.
Currency exchange rates are another challenge. The board expects an £8m to £9m impact on earnings from exchange rate movements this year, which could limit profitability.
Lastly, while PRRS-resistant pigs are exciting, regulatory approvals in key markets like the US, Canada, and Japan are still pending. Any delays or denials could hit the share price.
Genus is a fascinating company with a unique position in animal genetics. Its technology has huge potential, and the recent surge suggests growing investor confidence. However, after this rapid rise, I’m reluctant to go the whole hog and buy it.
If the stock dips or interim results on 27 February deliver further positive surprises, I might reconsider. For now, I’ll keep Genus on my watchlist and wait for a tastier entry point.
