Gold for immediate delivery continues to uptrend. On the London Bullion Market, the precious metal closed at $1,265.05 per troy ounce May 26 and increased 1.04%, or $13.05 per troy ounce, over week No. 21.
Week No. 21 was also positive for the gold industry, as shown in the graphic below. One of the most important gold stock indexes, representing the gold industry as a whole, the SPDR Gold Trust (GLD), increased by 3%:
As President Donald Trump wants a low dollar to promote American exports – the U.S. Dollar Index Futures went down 7 cents or 7% over the last week period and is trading at $97.26 – the Fed is supposed to keep interest rates low for some time or increase them but at a slower pace.
These expectations on U.S. rates create pressure on precious metals, which prices are therefore expected to continue their uptrend on the bullion markets.
With prices of gold uptrending, investors are looking for best buying opportunities in the gold stocks industry. One way to get exposure on gold and the other precious metals is to invest in royalty and streaming companies rather than in gold mining companies. Investing in gold royalty and streamers allow investors to benefit from rising precious metals prices without taking the risk that is related to mining the metals.
One of the gold royalty and streaming companies that today represents a good buying opportunity is Franco-Nevada Corp. (NYSE:FNV), a leader in the industry due to its large portfolio of assets situated in four continents. The company can also rely on a strong stream of projects from which successful completion Franco Nevada expects to expand its business.
The oil and gas industry is also deemed by the Canadian company as a potential source to increase Franco Nevada’s revenue through a diversification of its portfolio of assets since the odds for a further expansion of the gold industry are becoming more and more less as gold deposits are running out.
However, the gas and oil industry accounts only for approximately 5% to 7% of the company’s portfolio as of today, while the rest of Franco Nevada’s portfolio of assets is composed by gold royalties and streaming, on which performances the Canadian gold royalty and streaming company’s economics and returns on the stock market depend.
For the first quarter, when gold and silver increased by 8.2% to $1,244.85 per troy ounce and 13.2% to $18.06 per troy ounce on the London Bullion Markets, Franco Nevada reported an EPS of 25 cents. This was 62% higher than expectations and generated a positive surprise of 13.60%. The stock soared 21% on the New York Stock Exchange.
For the second quarter, Franco Nevada is expected to close the reporting period with an EPS ranging between a low of 19 cents and a high of 28 cents. With an average EPS forecasted to be 23 cents, 1 cent higher than the EPS of the previous quarter, and with gold likely to close well above $1,250 per troy ounce, Franco Nevada will presumably exceed analysts’ expectations on second-quarter earnings producing another positive surprise with an impact on the market value of the stock that today is trading at $73.59 on the New York Stock Exchange.
The stock is uptrending and it gained more than 23% on the U.S. stock market. Franco Nevada is trading at 20.18 times its sales, computed over the last 12 trading months and at 3.15 times its book value per share.
The company has U.S. $283 million in cash on hand and securities as of the most recent quarter. Thanks to its highly fruitful portfolio of assets Franco Nevada can easily generate cash flows from operations of around $450 million over a 12 trailing months’ period characterized by rising metals prices. Since investing activities usually absorb a moderate amount of financial resources and Franco Nevada doesn’t have debt, the Canadian gold royalty and streaming company can also distribute dividend to its shareholders.
The company pays a quarterly dividend of 23 cents to its shareholders. The next dividend will be paid on June 29. The dividend yield is 1.25%.
Franco Nevada can also draw funds as needed from a line of credit of $1 billion with maturity in November 2020.
Disclosure: I have no positions in Franco Nevada Corporation.
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