Much like the plants that form the life of the business, plant-based product savant Burcon Nutrascience (Burcon Nutrascience Stock Quote, Chart, News, Analysts, Financials TSX:BU) continues to steadily grow, with Beacon Securities analyst Doug Cooper on July 6 maintaining his “Buy” rating on the stock, along with the $8.00 price target he previously reported in February.
The news comes after the Vancouver-based corporation reported its fourth quarter results for the 2021 fiscal year, which saw the company stay in line with Beacon Securities projections despite Merit Functional Foods, its joint venture with St. Louis-based Bunge Limited, having experienced delays in getting its Winnipeg manufacturing facility installed, largely attributable to COVID-19. Consequently, the organization’s EBITDA was adjusted to a loss of $4.6 million, though it still holds a potential return of 146%.
Cooper fully expects the issue to be easy for Burcon to overcome in the short term, with a full-fledged rebound coming soon.
“The issue, in our understanding, is the installation of equipment, mostly from overseas, which has been more difficult given COVID restrictions in terms of getting teams over to Winnipeg,” he said. “Clearly, this is a short-term issue and BU indicated it expects Merit to be revenue generating, and thus BU royalty-generating, in its Q2 period.”
Despite the initial setback with Merit, Burcon still experienced a strong overall year, with plenty of optimism surrounding the company’s growth.
“Fiscal 2021 and the year to date was a transformational period for Burcon, reinforcing our position as a leader in the development of plant-based proteins,” said Johann F. Tergesen, Burcon’s president and chief executive officer, in the results released on June 29. “We began and finished the year in a strong financial position allowing us to focus on supporting our joint venture, Merit Functional Foods. Merit Foods, which formally completed construction of its state-of-the-art protein production facility during the year, will produce, under license, Burcon’s game-changing pea and canola protein ingredients.”
Merit Functional Foods has hit the ground running in its new facility, having signed a collaboration deal with Nestle in January 2020 to develop new pea and canola protein products, further bolstered by a second investment from Protein Industries Canada to develop possible meat and dairy alternatives. These deals will only help to strengthen Burcon’s industry-leading foothold in the plant-based protein sector, which is believed to feature over 300 intellectual property patents while producing the highest levels of protein purity, scoring close to 1.0 on the Protein Digestibility Corrected Amino Acid Score.
“We are pleased to see the continued support from Protein Industries Canada as Merit enters production of its innovative, Canadian-sourced pea and canola protein ingredients,” Tergesen said in the company’s May 28 press release, adding, “With this investment, Merit and its partners can accelerate the development of and bring to market tasty and nutritious plant-based foods and beverages that consumers will enjoy.”
With its investment in Merit Functional Foods, Burcon stands to receive royalties in the high single-digit range from product sales, with Cooper suggesting a significant economic impact may not be far away.
“While Merit is set to start production from “Phase 1”, we believe it can quickly move to Phase 3, which should be capable of processing 100,000 tons of input or ~$250 million in revenue at very high margins,” he said. “Given the demand for its products, selling out this capacity should not be an issue. At such a level, we believe the economic impact to Burcon would be ~$50 million. Based on the current market cap of ~$350 million, BU trades at ~7x that level.”
Cooper is also bullish on both Burcon and Merit’s continued growth, particularly with the rapid evolution in consumer options for standard products.
“The focus on plant-based eating continues to massively outpace regular grocery,” he said. “As more plant-based CPG products come to market, the demand for plant-based proteins for such products will continue to accelerate. This is a major positive for Merit and Burcon.”
Going forward, Burcon could be in a position to be acquired by Bunge, particularly once Merit Functional Foods has its production fully functioning, the analyst believes. Burcon owns 33 percent of Merit, while Bunge owns 25 percent, though the latter may look to purchase Burcon’s stake in Merit and its intellectual property upon seeing the Winnipeg facility operating smoothly with potential for expansion to other markets, and the potential economic value could top $1 billion, Cooper adds.
The analyst thinks Burcon will post an Adjusted EBITDA loss of $4.6-million on zero revenue in fiscal 2021.
At the time of publication, Burcon was trading at $3.11 on the Toronto Stock Exchange, down 3 cents from its Thursday opening of $3.14. Cooper’s target represented a return of 146 per cent at the time of publication.
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