Genus shares trot higher on Liberum upgrade

The broker said the upside risks to mid to long-term estimates for the company give it the confidence to upgrade, despite short-term headwinds from African Swine Fever (ASF) in China and the high valuation of the shares.

Liberum argued that while ASF is causing a short-term hit to PIC profits in China - £3m in the first half of 2019 - it will cause Chinese and global pig prices to soar. It noted that the Chinese piglet price has jumped in the last few weeks.

"The vast scale of Chinese import demand will trigger substantial global hog production expansion for which Genus is in prime position to benefit," it said.

Liberum also said that ASF will likely drive the modernisation of China's hog industry, as it did in Russia. "This would catalyse huge growth for PIC," it said.

In the broker's report on Genus in February last year, it highlighted a 10-year +£40m EBIT opportunity for Genus in China.

"ASF brings the opportunity closer. It will require governmental legislation and incentive schemes, which we expect will come once the scale of China's pork production short-fall becomes obvious."

It pointed out that when ASF was first reported in Russia in 2007, back-yard farming made up around 50% of Russian pork production. Now it is about 15%, and Genus’s market share has risen from 8% to 38% of the top 20 producers.

At 1500 GMT, shares were up 3.2% to 2,256p.