Shore Capital has nudged up its valuation for animal genetics group Genus PLC (LSE:GNS), raising the fair value from 2,750p to 2,900p and sticking with a buy recommendation ahead of full-year results next month.
The upgrade reflects stronger-than-expected cash conversion, faster debt reduction and improving margins, particularly in the bovine (ABS) division.
Adjusted profit before tax forecasts have been lifted to £72 million for 2025, in line with recent guidance. Shore now expects adjusted earnings per share of 79.7p this year, rising to 108.2p by 2027.
While the shares have already had a strong run, up 53% over the past 12 months, the broker sees further upside, underpinned by continued recovery in both the porcine and bovine businesses, and long-term growth potential from Genus’s gene-edited, PRRS-resistant pig programme.
The porcine division (PIC) has bounced back strongly in 2025, with adjusted operating profit expected to grow by nearly 13% at constant exchange rates.
A key driver is the shift toward royalty-based customer agreements, which make revenues more stable. Seven new royalty customers were signed in the first half alone, and pork producers in the US and China remain in profit, supporting further growth.
The ABS business, historically a lower-margin unit, is undergoing a well-received turnaround.
Cost-cutting and a productivity drive, referred to as the VAP programme, are expected to add more than £21 million to operating profit on a run-rate basis.
Shore forecasts ABS to contribute around £19 million of adjusted operating profit this year, with margins rising steadily to 12% by FY29. That said, restrictions on bovine semen imports into China remain a potential headwind.
With net debt forecast to fall from £249 million last year to £223 million this year, and cash conversion forecast to hit 170% of earnings, Shore believes Genus is in a much stronger position to consider acquisitions again.
Valuation remains demanding, trading on 32 times next year's earnings, but the broker argues this is justified by the company’s track record, growing royalty income and pipeline of proprietary products.
The shares rose 1.4% to 2,702p.