The rise of Beyond Meat, which recently posted a hugely successful IPO may have stirred interest in Canada’s Burcon Nutrascience (Burcon Nutrascience News, Stock Quote, Chart TSX:BU), but the company is far from a “me too” play, says Beacon Securities analyst Spencer Churchill.
In a research report to clients this morning, Churchill initiated coverage of BU with a “Buy” rating and a one-year price target of $2.00, implying a return of 199 per cent at the time of publication.
The analyst says Burcon, which has more than 20 years experience in patenting and processing technologies for proteins derived from plants, just received major validation in the form of a licensing deal for its soy technology with global leader ADM. He thinks this is a new path for value creation.
“Burcon and a group of seasoned agri-food executives have formed a JV to build a plant-based protein production facility. Burcon will contribute $8M in equity (secured by a recent ~$15M rights offering) for a 40% share and their IP for a revenue royalty,” the analyst notes. “The deal contemplates a relatively under sized phase 1 ($65M total capex), hence here is significant upside through capacity expansion. The Canadian Pure-Play: Prior to the wildly successful IPO of Beyond Meat (BYND-Q, Not Rated) there had been no pure-play public vehicle in which to invest in the plant-based frenzy. Beyond IPO’d at US$25 and is up ~500% since. Burcon rallied hard on the JV and rights announcement, but has since retraced with a market cap currently of ~$61M. We believe the name remains under the radar in the investment community and is the only public pure-play in Canada on the plant-based food industry.”
Churchill thinks Burcon will post EBITDA of negative $4.56-million on revenue of $100,000 in fiscal 2020. He expects those numbers will improve to an EBITDA loss of $3.11-million on a topline of $1.64-million the following year.
The analyst says BU is addressing an absolutely huge market potential, with meat alternatives being in their infancy.
“The rise of the mainstream flexitarian, a greater focus on protein intake and heightened environmental/sustainable awareness has created very fertile ground for the plant-based food industry, Churchill adds. “Product advancements that have produced good-tasting alternatives to meat have set the stage for a cultural shift in what people eat and the supply chain required to satisfy this demand. Rapid adoption by consumers and the food service industry of plant-based alternatives has significantly increased the demand for proteins derived from a core group of high protein plants (soy, pea, canola) and is driving hundreds of millions of dollars of investment.”