Paradigm Capital analyst Corey Hammill says a quiet news flow surrounding plant protein company Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News, Analysts, Financials TSX:BU) makes for a buying opportunity. In a report to clients on Tuesday, Hammill reiterated his “Buy” rating and 12-month target of $6.00 on BU, saying the second half of 2021 should have more catalysts for investors to sink their teeth into.
Burcon Nutrascience is a protein extraction and purification tech company with patented plant proteins including Peazazz, Puratein, Supertein and MeritPro HS. The company has a joint venture in Merit Functional Foods, which built a currently operational protein production facility in Manitoba to produce Burcon’s novel pea and canola protein ingredients.
The small-cap stock with a market capitalization of $382 million caught fire in 2019 with the emergence of the plant-based sector including Beyond Meat, which went public in April of that year. BU saw a further run-up in 2020, taking the stock from just below a buck at the start of January to $3.44 by December 31, 2020. The trend continued into the new year where Burcon rose to a high of $5.71 by mid-February but the stock has fallen off since and is currently trading around $3.50.
Burcon, which will be presenting its fiscal 2021 (year ended March 31, 2021) financials on June 29, has had a few notable news items of late, including becoming a dual-listed company when it joined the NASDAQ last month, while in April the company’s Merit Foods JV reported its first commercial production of canola protein.
Burcon president and CEO Johann F. Tergesen said the commercialization is a big achievement for the company.
“Burcon first embraced the vision of canola’s potential as a premium, food-grade protein source over 20 years ago. Today, Merit Foods, with its just-completed high-tech plant protein production facility, is bringing eco-friendly canola proteins to market using Burcon’s patented processing technology. These proteins stand to change the way the world’s consumers get their protein,” said Tergesen in an April 12 press release.
In his report, Hammill said while there’s been less in the way of news flow lately, he found some interesting tidbits on Merit on LinkedIn, where last week the company highlighted its Puratein G protein as an alternative to methylcellulose in meat alternatives. As Hammill explains it, methylcellulose is a chemically modified derivative of cellulose that is used as a binding agent in burger patties, for example. While not harmful, the use of methylcellulose has garnered negative attention for companies like Beyond Meat who use it in their products as it has an application as a laxative, although in greater quantities than found in plant-based foods.
Hammill said using Puratein G as a binding agent makes for a cleaner food label and thus an advantage for Merit and Burcon.
“We think the option of replacing a seemingly confusing ingredient with a relatively straightforward ingredient while maintaining the same function properties as yet another strong selling feature of Merit, and by extension, Burcon’s protein technology,” Hammill wrote.
As he has previously written, Hammill said Merit has the ability to produce superior pea and canola proteins based on purity. Protein quality is ranked on a scale called Protein Digestible Corrected Amino Acid Score (PDCAAS), which has been the standard for almost 30 years. Hammill said proteins are given a score from 0.0 to 1.0, with the average pea protein score being around 0.8, while Burcon’s technology can achieve a perfect 1.0.
“Burcon NutraScience Corp. offers a unique opportunity to invest in an industry with a growing demand profile and lack of public players in the space,” Hammill wrote. “With growing consumer demand for plant-based foods expected, there will be a supply issue for plant-based proteins which are used to enhance and increase nutrition profiles of plant-based foods.”
“With the backing of the joint venture and near-term commercial opportunity, we believe Burcon has the platform to be a top-tier protein developer,” he said.
Hammill said with new plant-based products continuously being introduced to the market there is likely to be a supply shortage of plant-based protein in the near term and thus a need for additional protein sources, while Merit is expected to have its protein ingredients in products and on shelves by the second half of this year.
At the time of publication, Hammill’s $6.00 target represented a projected return of 67 per cent.
Hammill explained BU’s drop in share price as follows.
“The recent share price decline is likely multi-faceted: a mix of limited news flow from both Burcon and Merit and perhaps the departure of fast-money investors who invested for a possible price bump following the recent NASDAQ listing,” Hammill wrote.
“Quiet news flow does not mean that Burcon isn’t working very hard in the background, both on the initial commercialization of the Merit joint venture and on evaluating possible new agreements,” he said.
“Our current target price is based solely on the Merit joint venture, with any new deals expected to be accretive to our valuation. As Merit begins shipping products, we expect H2 to have more newsflow, which we think should be positive for Burcon’s share price,” Hammill said.
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