Burcon Nutrascience gets new $2.20 target price at Beacon

A new round of funding for Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News TSX:BU) has Beacon Securities analyst Spencer Churchill raising his price target on the stock.

On Friday. Burcon announced it had received a “significant” co-investment from Protein Industries Canada.

“We are pleased to see Merit receive this valuable support from Protein Industries Canada,” Burcon CEO Johann Tergesen said. “the state-of-the-art protein-production facility that Merit is currently building in Manitoba will produce the first high-purity, non-GMO canola protein products for sale to customers across the globe, which will create a new value-added revenue stream for canola grown in Western Canada.”

Churchill said this is likely not the last time Burcon will receive government funding.

“This morning, Burcon along with the Merit JV and Protein Industries Canada (PIC) announced an agreement whereby PIC will provide $9.5M (in the form of a grant) to help finance phase 1 of the plant,” he noted. “We had assumed $5M – $10M would come from government grants and hence this is a positive outcome. Furthermore, we would expect other federal and provincial agencies to step up given this is clearly an area of focus for them.”

The analyst said Protein Industries Canada is set to become a champion for Canadian protein players.

“Protein Industries Canada is one of five “super clusters” funded by the Federal government with the intent to finance development in plantbased products and co-products. PIC will invest ~$150M into projects over four years. Its first investment was announced in June 2019: $4M into Botaneco Inc, Corteva and Rowland Farms to commercialize a new processing technology yielding a variety of new oil and proteins. The 2nd round of expressions of interest closed in September 2019 (19 products submitted valued at $133M) and as of December 2019 PIC had six approved projects, with a total value of ~$60M.”

In a research update to clients today, Churchill maintained his “Buy” rating on Burcon but raised his one-year price target on the stock from $1.90 to $2.20, implying a return of 59 per cent at the time of publication.

The analyst thinks BU will post EBITDA of negative $4.52-million on revenue of $73-million in fiscal 2020. He expects those numbers will improve to EBITDA of negative $4.2-million on a topline of $760-million the following year.

“This is a high profile government agency with deep pockets that intends to champion Canadian plant-based protein players and will be very vocal in their support for the Merit JV,” Churchill said. While Burcon has indicated that the capex remaining to fund phase 1 (~$53M) was essentially secured, this is the first public disclosure and should serve a de-risking event and add confidence that the remaining funding is in place. We have increased our target price to $2.20 (from $1.90/sh) reflection a reduction in the Merit Foods risk premium (from 9% to 7%) in our DCF (given lower funding risk for the JV).”