Burcon Nutrascience is still a double, says Beacon Securities

With new financing under its belt, plant-based protein company Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News TSX:BU) should have enough funds to get its joint venture pea processing business up and running, says Spencer Churchill, analyst for Beacon Securities.

In an update to clients on Wednesday, Churchill reiterated his “Buy” rating and $3.25 price target, which
at the time of publication represented a projected 12-month return of 99 per cent. Burcon announced on Wednesday that it has closed on its previously announced bought deal for $11.5 million, with the proceeds to be used for research and development activities, the strengthening of its patent portfolio and general corporate purposes.

The financing consists of a $10-million base and a fully exercised $1.5-million over-allotment option, with the company issuing 7.42 million units consisting of one common share priced at $1.55 per share and a one-half common share purchase warrant at an exercise price of $2.00 per share with a 24-month term.

“We are pleased to have completed this bought deal financing,” said Johann F. Tergesen, Burcon's president and CEO, in a press release. “The funds will enable Burcon to further accelerate our key opportunities and the development of our nutritious and great-tasting plant-based proteins.”

Burcon has over 270 issued patents and over 260 patent applications, all pertaining to novel plant-based proteins derived from pea, canola, soy, hemp, sunflower seed and others. Burcon holds 40 per cent interest in a joint venture called Merit Functional Foods, created last year by Burcon and three food industry parties and currently in the process of building a pea and canola protein production facility in Manitoba.

Churchill says the new proceeds give Burcon enough resources to pay for operating losses at the Merit JV prior to first revenue, to fund their portion of capex for Phase 2 of the project and to still have about $2 or $3 million in the bank.

On the new surge in plant-based foods, Churchill points to Nestlé, who generated CHF200 million in plant-based revenue in 2019, a double-digit increase over the previous year, with CEO Ulf Mark Schneider calling the plant-based movement a “once-in-a-generation” opportunity that will be a long-term trend.

As well, the analyst noted some positive macro data points from the QSR industry, with Burger King recently starting testing of the Impossible Croissan’wich in five US states and launching the Impossible Whopper in New Zealand, with Denny’s launching the Denny’s Beyond Burger at all of its US locations following a successful trial last fall, with KFC launching the Vegan Chicken Burger in the UK and testing the Beyond Fried Chicken in two US states, and with Starbucks recently announcing it would begin offering plant-based dairy and food options across its North America locations this year.

Churchill said, “We reiterate our Buy recommendation and $3.25/sh target, as the increased shares is offset by a slight reduction to our risk premium given greater funding certainty.”

The analyst thinks Burcon will generate fiscal 2020 revenue and EBITDA of $53,000 and negative $4.2 million, respectively, and fiscal 2021 revenue and EBITDA of $760,000 and negative $3.365 million, respectively.