Burcon Nutrascience is in the right place at the right time: Beacon

Growing interest in the plant-based protein market spells good news for Burcon NutraScience (Burcon NutraScience Stock Quote, Chart, News TSX:BU), says Spencer Churchill, analyst for Beacon Securities.

On Wednesday, Churchill reiterated his “Buy” rating and $2.00 target price in an update to clients, saying that the company is now drinking from a fire hose in terms of demand for its products.

The moves are coming fast and furious in the skyrocketing plant-based protein space, with the latest being an announcement on Wednesday from US agricultural commodities giant Cargill that it is investing an additional US$75 million in pea-protein processor PURIS, effectively tripling Cargill’s initial investment in January of 2018 in PURIS, which signed a supply agreement with Beyond Meat this past December.

Beyond Meat’s offerings have been put on menus for fast-food chains from Dunkin’ and Subway across North America to Tim Hortons and A&W here in Canada. The latest, commented on by Churchill in his update, includes KFC, which in addition to its successful launch of its Imposter Burger in UK this June recently had a one-day promotion in Atlanta for its Beyond Fried Chicken, making it the first US national quick service restaurant (QSR) company to offer a plant-based chicken product.

Add to that, Churchill writes, the announcement on August 19 from HelloFresh that it will introduce the Beyond Burger as part of its ‘Craft Burger’ collection nationwide in the US in September.

Altogether, it makes for an enticing picture for expanding plant protein processing company Burcon, says Churchill.

“The Cargill investment is direct evidence supporting the view that the plant-based protein market is supply deficient and there should be significant interest-in and demand for production from Phase 1 of Burcon’s Merit JV with potential to expand beyond,” Churchill writes.

“While not necessarily material to a company like Cargill which generated ~$3 billion in earnings last year, the investment is still a strong endorsement by an industry giant of the plant-based market potential and represent a three-fold increase in their commitment. Hence, we maintain our bullish stance on Burcon and the market potential for their end products as evidenced by the flurry of plant-based product trials and roll-outs by many of the world’s largest QSR companies in the past several months,” he says.

The analyst also noted that Protein Industries Canada, one of five federally-funded Superclusters, announced that it will start its second call for funding proposals on September 1, with total available funding of $153 million expected to be invested across the value chain over the next four years.

Churchill thinks that Burcon will generate fiscal 2020 revenue and EBITDA of $91,000 and negative $4.5 million, respectively, and fiscal 2021 revenue and EBITDA of $1.6 million and negative $3.1 million, respectively. His $2.00 target represents a projected return of 53 per cent at the time of publication.

Burcon’s share price has had a wild ride over the past six months, climbing from the $0.30-range in April to as high as $1.87 by late May. As of midday on Wednesday, shares are trading down 1.5 per cent, putting the stock at a year-to-date gain of 639 per cent.