Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News TSX:BU) has been on a heck of a ride over the past year and a half, but compared to its plant-based peers, the stock is still relatively inexpensive. So says portfolio manager Bruce Campbell of StoneCastle Investment Management, who thinks Burcon might be ripe for a takeover.
“The whole plant-based area is obviously huge and continues to take off,” said Campbell, president at StoneCastle, speaking on BNN Bloomberg on Tuesday. “Burcon has done a joint venture partnership where they own part of this new production plant that’s being built in Manitoba that will then go out and supply.”
“They’ve done deals with some fairly good-sized names. It doesn’t have any real pure peers but you can compare it to something like Beyond Meat, and the valuation of Burcon is super cheap,” he said.
Burcon Nutrascience is a protein extraction and purification company with a 33 per cent stake in the JV Merit Functional Foods, where Merit has been building a state-of-the-art facility for production under license of pea and canola proteins.
The company saw its share price take off in the spring of 2019 with the emergence of US giant in the industry, Beyond Meat, which shot up like a rocket on its public debut in May of last year.
Since then, Burcon has whetted investors’ appetites with some enticing partnerships. In January of this year, the company announced a joint development agreement with Nestlé to develop and commercialize novel plant protein ingredients for use in Nestlé’s foods and beverages. Then came a $30-million investment in August with Bunge, bringing in the agribusiness and food company as an equity partner, now owning 25 per cent of Merit.
“The [Nestlé] agreement reduces the risk profile associated with royalty revenues and should give Merit/Burcon further confidence to expanding production,” said Spenser Churchill of Beacon Securities in a client update on January 24. Spencer said the deal validated Burcon’s technology, considering the due diligence a company like Nestlé would have performed and would be a way to bring more investors on board.
In 2019, Burcon’s share price rose from $0.17 to $0.97, a 470 per cent upswing, which has been followed up by a triple so far in 2020, as the stock has hit the $3.00 mark this week.
Beyond Meat, which itself is up almost 90 per cent year-to-date, has likely been on investors’ minds recently when fast food giant McDonald’s announced in November its own plant-based burger, the McPlant, to be tested at select locations and looking to head a lineup of meatless alternative menu options for McDonalds. Noticeably, Beyond Meat, which has had its product adopted by other quick service restaurant chains, wasn’t mentioned in the McDonald’s presser, even as Beyond Meat claimed it has been working with McDonald’s on the McPlant. The news seems to have contributed to dampened spirits regarding Beyond Meat, which is down about 25 per cent since early October.
For Burcon and Merit, the Bunge deal in August was another feather in their caps, with the cash injection fast-forwarding development of the Manitoba protein facility. In the deal, Bunge bought equity from Merit along with purchasing Merit shares and debt from Burcon, effectively bringing Burcon’s stake in Merit from 40 to 33.3 per cent.
Burcon CEO Johann Tergesen said joining forces with Bunge was a huge step forward.
“This secures the future for Merit, which will benefit greatly from Bunge’s large canola origination footprint and multinational platform,” said Tergesen in an August 27 press release. “With this transaction, Burcon is aligned with a leader in the global food ingredients industry, expanding Merit’s reach to new customers and consumers in Canada, North America and worldwide.”
Campbell said investors should keep an eye on Burcon as a potential acquisition target.
“Once they get to the point where they have increasing and strong revenue and cash flow, it’ll really probably catch the eyes of investors. At that point in time it might also be a takeover target,” Campbell said.
“The stock has been doing quite well here lately, especially with this focus and you’re seeing more plant-based proteins being rolled out at a lot of supermarkets and fast food restaurants so it’s certainly one to watch,” he said.
Campbell said the growing societal interest in meatless alternatives like Beyond Meat have made it easier on companies like Burcon to raise capital to fund its development.
“It was probably more difficult when it was a trend that was new to be emerging as opposed to frontline news,” Campbell said. “Anytime you’d walk into a restaurant, a fast food restaurant or supermarket you didn’t see plant-based, but now you do and so it’s probably a little bit easier for them to raise money.”