ECO Animal Health Group PLC’s (LON:EAH) shares lost almost a third of their value on Monday after the veterinary medicines maker issued a profit warning after it revealed that its sales had been ravaged by the outbreak of African Swine Fever (ASF) in its main market, China.
In a trading update, the AIM-listed firm said sales in China shrank 60% compared to last year because of the outbreak, which has so far wiped out a third of China's pig population and upended the global pork supply.
As a result, ECO Animal Health said, its full-year trading performance will come in “significantly below current market forecasts if these trends continue”.
The group said the impact was exacerbated by China-USA trade tensions, which stopped US pork producers from exporting as much meat to China as they expected because of the shortage instead leading to overproduction and depressed prices and margins in the US.
The animal health company said that reports of a reduction in new ASF infections in China and a restocking of pig herds, as well as the growth in Brazil and Mexico's pork exports, gave “some encouragement for the second half of the current financial year”, although it added that the timing of a market recovery is still uncertain.
“ASF continues to have a major impact on our business in China, but I am pleased with the progress we are making in other territories which goes some way to mitigating this," ECO's chief executive Marc Loomes said in the statement:
In late morning trading on Monday, ECO Animal Health shares traded 30% lower at 249p.
In a note to clients, analysts at Peel Hunt retained a 'buy' rating on ECO's shares but chopped their target price to 460p from 600p.
They said: "The changes will impact P&L but not have a meaningful impact on cash or cash flow. We expect net cash to reduce from £18m last year to £14m at the half-year and improve slightly to £15m at the year-end.
"The reduction in forecast reduces our DCF from 600p to 460p, but in reality the numbers could easily bounce back with the recovery in the Chinese hog herd."
ECO Animal Health also announced that its interim chairman Andy Jones would move to a permanent role.