Pea protein company Burcon NutraScience (Burcon NutraScience News, Stock Quote, Chart TSX:BU) is getting more media play these days due to the Beyond Meat craze, pumping up its share price over the past week.
But there’s more where that came from, according to Beacon Securities analyst Spencer Churchill, who says Burcon represents one of very few public vehicles to play the plant-based food alternative market.
In an update to clients on Friday, Churchill reiterated his “Buy” rating and $2.00 target price, representing a projected return of 72 per cent at the time of publication.
Earlier this week, Beacon Securities hosted a marketing day for Burcon, with Churchill pointing to a number of highlights, including news from Burcon’s JV partners on potential customers and advanced discussions between Burcon and a large multi-national food and beverage company, Churchill’s confidence that finalized funding for the remainder of Burcon’s plant capex will be announced in the near term (a key de-risking event, he says), and the fact that Burcon’s Phase 1 building (with 20,000 tonnes of pea input) already seems well undersized based on initial customer interest.
Burcon Nutrascience valuation could rise with Beyond Meat
“Burcon’s under the radar status is beginning to change, as we’ve seen several articles published in the past few days from the likes of Bloomberg and Western Canadian Media,” says Churchill. “As witnessed with Beyond Meat, valuations can become extremely extended when there is a scarcity of stocks available to invest in a hot space.”
“We believe there is significant room for upside to our valuation as Burcon/Merit layout expansion plans and if Burcon is able to sign up a major co-development partner. The macro trends remain firmly in the company’s favour as a recent industry report demonstrates. Hence, we maintain our bullish stance on Burcon,” he says.
Churchill points to a report released on July 16 from the Good Food Institute and the Plant Based Foods Association that says that US sales of plant-based meat were up about ten per cent in the year ended April 2019 and total US retail sales of plant-based foods totalled about US$4.5 billion, up 11 per cent year-over-year.
“Overall, we view the data as supportive of our growth forecast, particularly in the plant-based meat market where penetration remains very low, and the plant-based diary replacement market, where Burcon’s product offering compelling value,” Churchill writes.
The analyst is calling for fiscal 2020 revenue of $100,000 and EBITDA of negative $4.6 million, respectively, and fiscal 20221 revenue of $1.6 million and EBITDA of negative $3.1 million, respectively.