Burcon Nutrascience is still undervalued, Beacon says

Shares of protein extraction company Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News TSX:BU) have been climbing in recent months, thanks to all the buzz around Beyond Meat and plant proteins.

And with funding now in hand for its joint venture Merit Foods, Burcon is all cashed up and moving forward. That’s according to Beacon Securities analyst Spencer Churchill, who on Tuesday released an update to clients, saying that the news flow around Burcon should stay active over the near term.

Burcon announced on Tuesday that it and its partners have secured the second tranche of funding for its Merit joint venture in the new $65-million pea and canola protein production facility to be built in Manitoba. First announced in June with an initial $10-million equity contribution from Burcon ($4 million) and its JV partners ($6 million), the second half of the $20-million has now been injected, allowing for construction to commence.

“Merit’s management team has been working tirelessly over the summer to initiate the buildout of Merit’s commercial plant-protein production facility,” said Johann F. Tergesen, Burcon’s president and CEO in a press release. “They are working to bring Burcon’s novel pea and canola proteins to market and thereby to establish Merit Functional Foods as a force in the plant protein industry.”

So far, with the land on which the 65,000 sq ft facility will be built (in an area close to Winnipeg) has been purchased and excavation equipment on-site, Churchill says that he expects concrete will start pouring in late September/early October. Churchill commented on the JV’s progress and the recent hires at Merit’s executive level.

“Overall, progress at Merit is in line with expectations, although it is positive to see the team expand and with former Hemp Oil / Manitoba Harvest employees that were part of the success there. We expect the news flow to continue in the near term as the Merit JV gets more vocal and public (new hires, ribbon cutting ceremony etc.) once they get all their PR ducks in a row (website is still not yet active). From the Burcon side, we expect funding announcements for the remaining capex to coincide with a ribbon cutting ceremony, along with a development partnership (timing remains the challenge here, but
macro developments are likely helping to move it along),” writes Churchill.

The analyst also points to more action from Canadian quick service restaurants (QSRs) on the meatless protein front: on September 11, Mr. Sub announced a Meatless Meatball offering, made from gardein, ConAgra’s health brand, while on September 3, Harvey’s Canada announced its Lightlife burger will go into all of its 292 locations in Canada, a win for Maple Leaf Foods’ Greenleaf Foods subsidiary.

Looking ahead, 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. EBITDA turns positive for Burcon in 2022, says Churchill, who sees revenue and EBITDA of $6.7 million and $6.3 million, respectively, in fiscal 2022.

The analyst’s $2.00 target represented a projected 12-month return of 40 per cent at the time of publication.