RE:Sorry Magna13, it was you that posted the new target.yea ok, i dont make things up
Burcon NutraScience (BU-T) Phoenix Launched January 24, 2020 Spencer Churchill, CFA (416) 507-3978 schurchill@beaconsecurities.ca • A Whale Landed – This morning, Burcon, along with their JV partner Merit Function Foods, announced a joint development agreement with global CPG giant Nestl (NESN-SW, Not Rated) to develop novel plant-based food and beverage products. • The Perfect Partner in Many Ways – Nestl is the largest food and beverage company in the world, generating CHF 91B in revenue in 2018 and behind some of the most recognized consumer brands such as Gerber, Nescaf, Cheerios, KitKat, Stouffers, Digiorno Pizza, and Hagen-Dazs. In 2017, Nestl bought Sweet Earth for $140M and offers a number of plant based (pea and soy/wheat) products including burger patties (Incredible/Awesome burger), sausages, mince meat, chicken filets, prepared dishes (plant-based Digiorno pizza and Stouffers lasagna), and plant-based dairy alternatives (creamers, coffee mixes, ice cream). The company also plans to launch vegan alternatives to cheese and bacon (to mate with the burger). Hence, the product applications for Burcon/Merit are vast, although we would note Nestl’s leadership in diary alternatives for beverages where Burcon’s technology is highly applicable. • Good Commercial Traction, with Huge Upside – Nestl has launched its pea-based Awesome Burger in North America (now carried at Costco [COST-Q, Not Rated)]) and McDonald’s (MCDN, Not Rated) offers the soy/wheat-based Incredible Burger in Germany and Israel (and hence Nestl is well positioned to be one of their suppliers in North America should MCD go full commercial launch after the trial currently on-going in Ontario). • Massive Positive – The agreement is hugely positive for the company and the stock in many ways: 1) material validation of Burcon’s technology; 2) provides Merit with significant ammunition to sign up new customers (and help push existing conversations over the goal line); 3) dramatically increases the industry profile of Merit and Burcon which should enable them to attract and retain talent; and 4) should give potential funding partners incremental comfort given the level of due diligence a company like Nestl would perform. • Another De-risking Event Results in Target Price Increase – The agreement reduces the risk profile associated with royalty revenues and should give Merit/Burcon further confidence to expanding production. Hence, we have increased our target price to $3.25 (from $2.20/sh) reflecting a reduction in the Merit Foods discount rate (from 9% to 5%, matching CLARISOY) in our DCF. Maintain buy recommendation.