By Mark Martin, Manager of Neptune UK Mid Cap Fund
Rapid economic and income growth is leading to a dramatic shift in diet towards protein products right around the globe. UK companies such as Genus, the world’s largest livestock breeder, are benefiting from this increasing demand. Mark Martin, manager of the Neptune UK Mid Cap Fund, discusses this investment theme.
Global protein demand is steadily growing, particularly in Asian markets, driven by urbanisation, population growth and rising incomes.
Chinese meat consumption in particular is forecast to reach 69kg per capita annually by 2030, an increase of almost 40 per cent but still well below the levels currently seen in the US and Europe. Driven by the findings of our in-house research team, emerging market protein demand is a key secular theme at Neptune, and provides a catalyst for more advanced industrial production methods to expand the supply of meat and dairy products worldwide.
As this trend evolves, animal genetics look set to play a central role in improving the quality and efficiency of protein production across the globe as nature alone struggles to keep apace of demand. Genus plc is the world’s leading company in the science of animal breeding and genetic improvement, and is a high conviction holding in the Neptune UK Mid Cap Fund based on several crucial attributes.
Genus: a sector winner
As one of just two multi-species businesses in the sector, the company has a 26% share in the porcine market, 24 per cent in beef and eight per cent in dairy sales excluding China. In porcine in particular, this is more than double the share of the nearest competitor and in fact most companies in this field are co-operatives, making Genus unique as a listed company. This kind of market dominance is one of the key traits that we at Neptune look for in our stock selection process.
However, despite its industry leading position, Genus still has significant potential to grow its share of a global market worth close to $4bn, and the group’s long-standing presence and continued investment in China leaves it better positioned than developed market competitors to capitalise on secular growth trends in the Chinese market and beyond.
A truly global reach
Employing over 2,300 people including 79 PhD scientists, Genus has a strong focus on its research and development activities which we believe bodes well for its future growth and profitability. This is combined with facilities in 25 countries across six continents and a broad distribution network enabling sales into a further 50 countries, giving a truly global reach.
In addition to its primary business supplying superior genetic material, Genus provides agricultural consultancy and laboratory services to its customers, employing both traditional methods and new genomic technology but avoiding genetic modification on ethical grounds.
Genus’s share price has risen by 35 per cent since we took our initial position in the stock in March 2014, and we have gradually increased our portfolio weighting based on our conviction in the stock’s prospects, market position and valuation.
In spite of impressive performance to date we continue to see significant opportunities for Genus to grow – be it in traditional developed markets or the paddy fields of China.
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The value of an investment and any income from it can fall as well as rise and you may not get back the amount originally invested. A majority of the investments made by the Fund may be in securities of small and medium sized companies. Such securities may involve a higher degree of risk than would be the case for securities of larger companies. The Fund may have a high historic volatility rating and past performance is not a guide to future performance. The Fund may invest more than 35% in government and public securities in a number of jurisdictions. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. Forecasts are not a reliable indicator of future performance. These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you of any change to our views. This is not a solicitation or an offer to buy or sell our funds. All information is given in good faith but without any warranty. Neptune does not give investment advice and only provides information on Neptune products.
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