Regulatory Approvals And Sustainability Initiatives Will Strengthen Future Market Position

Key Takeaways

• Expansion in the porcine business and PRRS resistant pig commercialization boosts revenue stability and growth through innovation and market penetration.
  
• Cost-saving and efficiency efforts through the Value Acceleration Programme increase operating profit, with sustainability initiatives driving customer-engaging growth.
  
• Challenging market conditions, regulatory uncertainties, and high expenses threaten Genus's revenue growth, earnings stability, and financial health.

Catalysts

Operates as an animal genetics company in North America, Latin America, the United Kingdom, rest of Europe, the Middle East, Russia, Africa, and Asia.

• Genus is driving growth in their porcine business, particularly through market share gains in Europe and expansion of their royalty model in China, which is expected to improve the predictability and stability of future revenue and earnings.
  
• The commercialization of the PRRS Resistant Pig (PRP), pending regulatory approval from the FDA and other international authorities, is a significant catalyst that could lead to increased revenue and earnings, as it represents a groundbreaking product in the gene-editing space.
  
• The Value Acceleration Programme (VAP) in the ABS division anticipates further significant cost savings and efficiency improvements, leading to increased operating profit and improved net margins.
  
• Genus is focusing on leveraging their R&D investments, particularly in PRP and IntelliGen bovine sexing technology, to drive high-value commercial outcomes that are expected to boost future revenue and profitability.
  
• Sustainability initiatives and external validation, like the UN FAO’s recognition of improved genetics in reducing environmental footprint, resonate with customer goals, potentially driving revenue growth as demand for sustainable solutions increases.

Genus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Genus's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 8.0% in 3 years time.
• Analysts expect earnings to reach £59.1 million (and earnings per share of £0.92) by about February 2028, up from £7.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £71.7 million in earnings, and the most bearish expecting £46.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.4x on those 2028 earnings, down from 150.3x today. This future PE is lower than the current PE for the GB Biotechs industry at 85.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.23%, as per the Simply Wall St company report.

Genus Future Earnings Per Share Growth

Risks

• China's challenging market conditions and unpredictable porcine market profitability could impact Genus's revenue growth and earnings stability.
  
• Regulatory approval uncertainties for the PRRS Resistant Pig (PRP) in the U.S. and other markets pose risks to future revenue and profitability.
  
• The significant FX headwinds due to sterling appreciation might negatively affect net margins and overall profitability for FY '25.
  
• Declining global milk prices and demand, especially in China, may adversely impact bovine revenues and earnings consistency.
  
• High exceptional expenses and increased finance costs, including litigation and restructuring, could weigh heavily on net margins and financial stability.

Valuation

• The analysts have a consensus price target of £24.644 for Genus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £31.0, and the most bearish reporting a price target of just £18.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £739.1 million, earnings will come to £59.1 million, and it would be trading on a PE ratio of 33.4x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of £18.08, the analyst price target of £24.64 is 26.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.