Burcon Nutrascience is extremely well-positioned in the plant based meat space: Beacon

This morning, McDonalds announced it will expand its Beyond Meat offerings into more restaurants in Southern Ontario. The burger giant had a test zone of 28 restaurants around London for its PLT (Plant, Lettuce, Tomato).

Churchill says that while BU itself has been relatively quiet, the backdrop for its offerings is improving by the day.

“McDonald’s expanded trial is another positive macro data-point and given all the momentum in the space we would expect MCD to at least expand the trial to the US at some point in the 2020, which would be a huge catalyst,” the analyst said. “Burcon’s stock has spent some time in the penalty box with a lack of business development news, although it is now almost 50% off its highs. We expect positive momentum in BYND (was up 13% yesterday) on the back of this news should provide a tail wind for BU. In addition, further upside could be supported by company specific news for Burcon we see on the horizon (still expect a ribbon-cutting ceremony, with government funding support, potential capacity expansion announcement and a codevelopment deal with a large CPG company).”

Churchill says its not just McDonalds, there is a spate of new trials, offerings and product launches.

“January is dubbed Veganuary in the vegan/vegetarian world and it has started with a bang. Some of the recent trials and launches include: 1) Hooters launching the Unreal Wing with Quorn; 2) Burger King trialing the Impossible™ Croissan’wich® (with plant-based sausage) in five states; 3) Impossible Foods launching a sausage and pork products at CES; 4) KFC (YUM-N, Not Rated) introducing the Vegan Burger (plant-based chicken sandwich) nation-wide in the UK (with Quorn) after a successful summer trial; 5) Subway Canada launching the Beyond Meatball Sub with Martha Stewart; and 6) Pizza Hut introducing the Pepperphoni Pizza (pea-based pepperoni) to its 254 locations in the UK.”

The analyst says supplying all these initiatives has brought up supply issues.

“Yesterday, it was reported that Impossible Foods (private) removed itself from discussions with McDonald’s for a US product launch (which Impossible has since called a misrepresentation) due to capacity issues. A lack of capacity has been a recurring theme and for Impossible, which likely has their hands full supplying the Impossible Whopper to Burger King for a notional rollout in the US to their 7,200 locations.

In a research update to clients today, Churchill maintained his “Buy” rating and one-year price target of $1.90 on Burcon Nutrascience, a figure that implied a return of 79 per cent at the time of publication.

The analyst thinks BY will post and EBITDA loss of $4.52-million on revenue of $73-million in fiscal 2020. He expects those numbers will improve to EBITDA of negative $4.19-million on a topline of $760-million the following year.