Franco-Nevada Corp. (FNV, Financial) beat expectations on third-quarter earnings and revenue.
The Canadian gold royalty and streaming company closed the quarter with an adjusted EPS of 30 cents versus a forecasted figure of 25 cents.
The beat produced a 20% positive surprise.
The EPS of 30 cents or the net profit – adjusted to one-time charges – of $55.3 million was almost in line with the bottom line of the previous year.
Third-quarter earnings were dropped from a top-line figure for revenue of $171.5 million, which represents a 0.3% decline from the comparable of 2016 and a $4.43 million beat on what analysts expected for the quarter closed on Sept. 30.
Third-quarter revenue was shared between precious metals (gold, silver and platinum group metals) for $152.3 million or 88.8% of total quarterly revenue, other minerals for $6.7 million or 3.9% of the total quarterly figure of revenue and oil and gas for $12.5 million or 7.3%.
In terms of equivalent gold, Franco-Nevada produced 123,787 ounces in the third quarter compared to 123,065 ounces produced by the company in the prior-year quarter.
On a year-over-year basis, revenue was almost flat because the production of precious metals went down 3,106 ounces of gold equivalent, and the consequent missing in sales was not completely offset by higher sales that came from the other Franco-Nevada segments of other minerals and oil and gas. The increase in sales from the oil and gas segment was due to “higher prices, increased payments from Weyburn as well as the addition of the STACK, Midland and Orion royalties” to the company’s portfolio of assets, Franco-Nevada reports.
The decline in the prices of the precious metals also impinged on third-quarter revenue, and it couldn’t be otherwise since 88.8% of the revenue – as mentioned before – was derived by gold (the largest factor in determining Franco-Nevada’s profitability), silver and platinum group metals: Gold averaged a price of $1,278 per ounce in the quarter versus an average price of $1,335 per ounce in the third quarter of fiscal 2016. The gray metal was down $2.79 per ounce to $16.83 per ounce in the third quarter. The prices of platinum and palladium were $953 per ounce and $901 per ounce in the quarter versus prices of $1,084 per ounce and $676 per ounce in the prior-year quarter.
The adjusted EBITDA increased by 5.7% to $134.1 million (or 72 cents per share) in the third quarter from $142.2 million (or 80 cents per share) in the third quarter of 2016. As a percentage of sales, the margin decreased by 450 basis points to 78.2% in the third quarter.
The company generated cash flow of $116 million from its operations in the quarter, and this figure represented a 4.6% decline, of course, on a year-over-year basis.
As of Sept. 30, the balance sheet was characterized by having an amount of $553.3 million in cash on hand and securities, which is $61 million lower than the previous quarter, and by being free of debt.
David Harquail – the CEO of Franco-Nevada – commented on the third-quarter results: “Franco-Nevada’s diversified portfolio continues to perform very well. We are seeing organic growth at some of our key precious metals assets such as Tasiast, Stillwater and Subika. We are also having good success at adding new investments. During the quarter, we closed the purchase of an oil royalty on the Orion Thermal Project in Alberta for 92.5 million Canadian dollars ($72.442 million). We also announced an agreement to acquire an additional precious metals stream at Cobre Panama for approximately $119 million. Subsequent to quarter end, we entered into an agreement to acquire for approximately $110 million a new package of oil and gas royalties on the Delaware portion of the Permian Basin in Texas. Franco-Nevada will now have royalties on the top three most active shale basins in the U.S. On top of its ongoing funding for the Cobre Panama project, Franco-Nevada has made over $500 million in new commitments in the past year to grow its portfolio and remains debt free.”
Source: Franco-Nevada's third-quarter report
Franco-Nevada is one of the few companies in the gold stock industry that distributes part of its free cash flow to its shareholders in the form of dividend. The gold royalty and streaming company distributes an annual dividend of 92 cents through quarterly payments of 23 cents to its shareholders for a dividend yield of 1.16%. The company has increased its annual dividend every year since 2007. The company will pay the next quarterly dividend this year on Dec. 21 to shareholders of record as of Dec. 7.
Franco-Nevada is trading around $79.61 with a market capitalization of $14.61 billion, a price-book (P/B) ratio of 3.10, a price-sales (P/S) ratio of 20.77 and an EV/EBITDA ratio of 28.85.
The recommendation rating is 2.8 out of 5, and the average target price is $77.54.
Disclosure: I have no position in Franco-Nevada.
