Plant-based protein company Burcon NutraScience (Burcon NutraScience Stock Quote, Chart, News TSX:BU) just received a major target raise from Paradigm Capital analyst Corey Hammill on the back of a new derisking event.
In an update to clients Friday, Hammill reviewed the details, saying Burcon is poised to be a top-tier protein developer.
Vancouver-headquartered Burcon is a core protein extraction and purification company with now a 33-per-cent stake in joint venture Merit Functional Foods which is building a state-of-the-art protein production facility in Manitoba for the production under license of Burcon’s novel pea and canola protein ingredients.
Burcon announced on Thursday that Merit has received a $30-million investment from international agribusiness company and new equity partner Bunge Limited. With the deal, Bunge becomes a 25-per-cent shareholder in Merit and Burcon’s stake goes from 40 per cent to 33.3 per cent. The transaction will involve a treasury offering and a secondary purchase of shares from the Merit founders.
Burcon management said the new investment will help expedite the expansion of the Manitoba production facility, which is expected to be operational in December of this year.
“Burcon is thrilled to have Bunge as an equity partner in Merit Foods,” said Johann F. Tergesen, Burcon's president and CEO, in a press release. “This secures the future for Merit, which will benefit greatly from Bunge's large canola origination footprint and multinational platform.”
Commenting on the deal, Hammill said along with the equity portion, Bunge will be playing a key role in Merit’s supply chain, providing Merit with the canola input to produce its canola-derived proteins, along with Bunge becoming a commercial offtake partner and buyer of finished products at market prices.
As well, Hammill pointed out that Bunge has the option to acquire the full Merit JV sometime in the future, with the analyst saying, “We have previously stated our expectation that in the long run the joint venture would be a takeout target; this gives us increased clarity on who the likely acquirer may be. The extent of the partnership should give investors increased confidence in the expected global demand of the Merit product.”
“We believe that the addition of Bunge to Merit will allow Burcon to step back and return to its core competency: developing superior plant protein extraction technologies. There are many opportunities for Burcon to develop technologies for protein extraction from new pulses such as mung bean and hemp. Given we expect there will be a supply shortage of plant-based protein in the near term as new plant-based products are being introduced to the market at a rapid pace, we are confident there will be a market for
additional protein sources. Burcon may look to do a similar deal to the Merit joint venture if it sees demand for new protein extraction technologies,” Hammill wrote.
Calling the announcement a de-risking event for the Merit JV, Hammill is now maintaining his “Buy” rating on BU but lifting his 12-month target from $3.00 to $4.25, which at press time represented a projected return of 95 per cent.
Hammill thinks Burcon will generate fiscal 2021 EBITDA of negative $3.3 million and EPS of negative $0.05 per share, moving to fiscal 2022 EBITDA of negative $1.7 million and EPS of $0.01 per share.