Burcon NutraScience still has a 63 per cent upside, says Beacon Securities

Its shares have risen sharply this year as plant-based foods have taken their step into the limelight, but at least one analyst thinks there is still plenty of upside in Burcon NutraScience (Burcon NutraScience Stock Quote, Chart, News TSX:BU).

One of only a handful of public plays in the plant-based food alternative market, Burcon could win big with its plant protein business, says analyst Spencer Churchill of Beacon Securities who on Wednesday reiterated his “Buy” recommendation and $2.00 target price for BU.

Vancouver-based Burcon on August 9 released on its fiscal first quarter 2020 financials for the period ended June 30, where it generated minimal revenue and a net loss of $1.3 million or negative $0.03 per share. Those numbers were in line with Churchill’s estimates of a $1.1-million net loss and negative $0.03 per share. The company’s total opex was flat quarter-over-quarter, which Churchill called encouraging, saying that he expects it to either stay flat or come down going forward. Burcon ended the quarter with $7 million in cash.

In an update to clients on Wednesday, Churchill said that in relation to the Quick Service Restaurant and Packaged Food sectors, management commentary from many of the companies recently reporting their quarters has been encouraging. To wit, Churchill quotes from representatives from Nestle, Del Taco, Dunkin’ Brands and Restaurant Brands, who all indicate that the plant-based trend is now a significant long-term trend.

In related recent news, Churchill notes that protein investment is continuing in Canada with Ingredion last week increasing its investment in its joint venture with Saskatchewan-based Verdient Foods to fund a new manufacturing facility for specialty pulse-based concentrates and flours from peas, lentils and fava beans (expected to be operational in the second half of 2020). Also last week, Subway announced that it would be offering the “Beyond Meatball Marinara” sub in 685 locations in Canada and the US for a trial period beginning in September.

“With all the incremental demand Beyond and others are experiencing, we would expect there is a strong desire to lock-in supply, particularly with one of the largest North American green-field plants not expected to come on-line until the end of 2020 (Roquette in Manitoba, originally expected to be operational in mid-2019). With Burcon targeting a mid-2020 start-up and with material expansion potential to be tapped, we believe the company is quickly advancing conversations with potential customers,” Churchill writes.

Churchill is calling for Burcon to generate fiscal 2020 EBITDA of negative $4.5 million on revenue of $91,000 and fiscal 2021 EBITDA of negative $3.1 million on a top line of $1.6 million. His $2.00 target represents a projected 12-month return of 63 per cent at the time of publication.

Burcon announced in July the closing of a $15.4-million over-subscribed financing round. The company’s 20,000-tonne processing facility near Winnipeg, Manitoba, is set to open in mid-2020, with the capacity to process both pea and canola protein, the latter being the first commercial canola protein production plant in the world.

Burcon’s share price shot up from the $0.30 range to as high as $1.87 in late May, coinciding with Beyond Meat’s going public on May 28. The stock dropped and then rose again over July, currently trading at $1.22 as of midday on Thursday.