Burcon Nutrascience is a top choice for 2022, according to Beacon Securities

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Despite stock issues in 2021, Beacon Securities analyst Doug Cooper is optimistic about Burcon Nutrascience (Burcon Nutrascience stock quote, chart, news, analysts, TSX financial data: BU). Cooper named Burcon his top herbal pick for 2022 while maintaining a “Buy” rating and a target price of $ 8 / share for a potential return of 480% in a client update on Dec. 15.

Incorporated in 1998 and based in Vancouver, Burcon Nutrascience develops plant proteins and ingredients for use in the food and beverage industries in Canada. Its product line includes Peazac and Peazazz pea protein, Nutratein, Puratein and Supertein canola protein, Soybean offering CLARISOY, MeritPro protein blend, Peazazz and Supertein blend Nutratein-PS and Nutratein-TZ, Puratein blend. and Peazac.

Burcon Nutrascience’s share price trended lower towards the end of 2021, trading as low as $ 1.33 / share on December 3 in a year that saw the share fall 52.9%, although Cooper said the drop in the share price felt the same. through small caps and green spaces.

“This performance, however, is not in a vacuum, as small cap stocks in general and plant companies in particular, large and small, have posted similar returns over the same time period,” Cooper said.

“In our opinion, part of this year’s underperformance is certainly related to the speed of the share price appreciation just before this recent drop, as well as the delay in commissioning and ramp-up of the Merit facility, ”added Cooper. “Despite these factors as well as the ongoing tax loss selling, we believe that Burcon’s shares at current levels offer a compelling value proposition given its differentiated and exclusive position in the food-based industry value chain. of growing but dynamic plants. “

Cooper points to several factors that motivate him to be optimistic about a potential tailwind in Burcon’s stock price, namely the idea that large consumer packaging companies like Nestlé, Pepsi, Coca Cola, Kraft- Heinz, General Mills, Kellog’s and Danone, among others, will need a differentiator in their products when they enter the plant space.

Cooper believes Burcon provides that differentiation because the company does not compete directly in the CPG market, but rather uses its patented intellectual property to provide these companies with the ingredients they can use to differentiate their products.

“As such, these are the ‘picks and shovels’ of the herbal industry,” Cooper said.

In total, Burcon holds 299 patents, 73 of which are in the United States, with 210 additional active applications. The technology has enabled Burcon to develop processes to produce pea protein with a purity of 90 percent compared to typical pea protein at 61 to 68 percent. Additionally, the company has also developed the only canola-based isolates that offer more than 90 percent protein that Cooper is aware of, while the gelling and binding properties are ideal for frozen desserts and yogurt, potentially two of the best. highest growth segments of the plant. industry based.

“The result is that Merit, with the intellectual property of Burcon, provides GPCs with the ingredients they need to differentiate their products, especially around protein content, taste and texture – all of which will increasingly become. more important as the industry grows but becomes more competitive, ”said Cooper.

Cooper also referred to the idea that traditional processors achieve vertical integration in herbal ingredients through mergers and acquisitions, making Burcon a potential acquisition target for a company like Bunge, which owns 30% of the Merit business with Burcon. While Bunge is expected to grow to $ 57 billion this year with EBITDA of $ 2.8 billion, Cooper believes Bunge may become more interested in acquiring Burcon once he finds out that the Merit processing plant of Winnipeg will work fine, as that would be a potential plan for further expansion.

Although Cooper notes that the industry’s stock prices seem to indicate a decline in the plant phenomenon, he also pointed to a recent Bloomberg report which predicted the industry to grow from around $ 35 billion this year to $ 162 billion. dollars in 2032, producing a ten-year CAGR of 19% compared to projections of around 3% for the general grocery market.

“At the current price of $ 1.40, our analysis shows that Burcon stocks have an exceptional risk / reward profile. The key, in our opinion, will be the quality of the plant’s proteins and their acceptance by CPGs, which should be known within the next 6 months or so. With a short knowledge fuse, significant upside potential, and a BU with $ 11 million with cash, we believe investors should take advantage of this weakness in the share price, ”Cooper wrote.


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