Plant-based protein company Burcon NutraScience (Burcon Nutrascience Stock Quote, Chart, News TSX:BU) still has the pedal to the metal, according to Beacon Securities analyst Spencer Churchill, who said in an update to clients on Friday that with multiple catalysts coming up it’s time to buy the stock on the dip.
A company with over 20 years of experience developing and patenting processing technologies and product applications for proteins derived from crops such as soy, pea and canola (and over 270 issued patents and over 260 additional patent applications), Burcon established a joint venture in 2019 called Merit Functional Foods which is building a protein production facility in Manitoba which is expected to be operational by mid-2020.
This January, Burcon announced a collaboration with Nestlé to develop and produce high-quality plant proteins.
Beacon Securities recently hosted Burcon management for two days of marketing, with Churchill concluding that despite the macro turmoil of the moment, things are progressing for Burcon: Merit is on track in its plant construction (with the first product sales expected in Q4 2020), work on a product launch with Nestlé is progressing and, importantly, Burcon is getting closer to signing another partnership agreement.
“Burcon is in the final stages of negotiating a second partnership with a major global player and an official announcement could be made in months (timing always difficult). The potential volumes involved would be material and likely result in a plant expansion announced concurrently with the deal,” Churchill wrote.
“It our understanding that Burcon would not be required to put up material capital to help fund construction. Negotiations are far enough down the path that there is no requirement for any further in-person meetings or inspections (travel restrictions that could delay the process are avoided),” he said.
On the Nestlé collaboration, Churchill said the product they’re working on was presented as “game changing” and would be revealed in the fall 2020.
“Importantly, the initial Nestlé product will be used in an existing product application that is very large. This is a huge plus as it would imply commercial volumes can ramp very rapidly compared to a slower ramp if this was a new novel product not currently marketed by Nestlé,” said Churchill.
The analyst said Burcon is “very well positioned” to fund its operations, even if the Merit plant construction is delayed, estimating that Burcon, which raised $21 million over the past few months, has about $13 – $14 million in a cash cushion. Churchill made the more conservative call that first revenues from Merit will come in Q1 of 2021.
Churchill argued that being in the pre-revenue stage is somewhat of an advantage for Burcon considering the present economic climate, as it won’t be posting financial results, leading to “universally positive” news through to the end of the year.
“With catalysts expected over the next several months and into year-end (partnerships, funding, product launches, plant construction and commissioning) we would be using the pull-back to initiate/add to positions,” Churchill said.
With the update, the analyst left his rating and target unchanged at “Buy” and $3.25 per share.
As of publication date, the $3.25 target represented a projected one-year return of 287 per cent.