Plant-based protein company Burcon NutraScience (Burcon NutraScience Stock Quote, Chart, News TSX:BU) landed a whale in its new deal with CPG giant Nestlé, according to analyst Spenser Churchill of Beacon Securities, who upped his price target for the stock in a research report to clients on Friday.
Burcon’s share price spiked last week on news of the Nestlé deal which will see the latter buy pea and canola proteins from Burcon’s JV partner Merit Function Foods, who are currently building a processing facility in Winnipeg.
Burcon described the new agreement as the start of a long-term relationship with Nestlé.
“Partnering with Nestlé – a global leader in food and nutrition – is a major milestone for Merit Functional Foods,” said Merit Co-CEO Ryan Bracken, in a press release on Friday. “Merit has already demonstrated the value of our novel proteins in plant-based foods. This new partnership helps build on this, and it’s a major step in developing the next generation of nutritious and delicious plant-based products that draw on the benefits of our novel proteins.”
Nestlé bought Sweet Earth for US$140 million in 2017, which has a number of plant-based products including burger patties (the Incredible/Awesome burgers), sausages, mince meat, chicken filets, prepared dishes and dairy alternatives. Nestlé has launched the pea-based Awesome Burger in North America at Costco, while the soy and wheat-based Incredible Burger is McDonald’s is currently launched in Germany and Israel with a North American trial currently in Ontario. Churchill says that Nestlé is well positioned to be one of McDonald’s suppliers in North America should the restaurant company go with a full commercial launch.
Altogether, the Nestlé deal is a de-risking event for Burcon, according to Churchill, and should give Merit and Burcon further confidence in their production expansion.
“The agreement is hugely positive for the company and the stock in many ways: 1) material validation of Burcon’s technology; 2) provides Merit with significant ammunition to sign up new customers (and help push existing conversations over the goal line); 3) dramatically increases the industry profile of Merit and Burcon which should enable them to attract and retain talent; and 4) should give potential funding partners incremental comfort given the level of due diligence a company like Nestlé would perform,” Churchill wrote.
On the news, the analyst has increased his price target from $2.20 per share to $3.25 per share while maintaining his “Buy” rating for BU. At the time of publication, the new PT represented a projected 12-month return of 81 per cent.
Looking ahead, Churchill thinks Burcon will generate fiscal 2020 revenue and EBITDA of $73,000 and negative $4.5 million, respectively, fiscal 2021 revenue and EBITDA of $760,000 and negative $4.2 million, respectively, and fiscal 2022 revenue and EBITDA of $6.7 million and $6.25 million, respectively. (All figures in Canadian dollars unless noted otherwise.)
Burcon’s share price finished 2019 up an incredible 271 per cent, rising from $0.17 per share and coinciding with last year’s public listing of plant-based protein company Beyond Meat.