Franco-Nevada Corp. (FNV, Financial) was flat on second quarter revenue of $161.3 million and adjusted net profit of 29 cents per share. At the end of regular hours trading on Thursday Aug. 9, the share price was $72.18, a 0.24% upside from the previous day. The company provided the earnings announcement on its website.
The revenue was 1.4% lower compared to the same quarter of last year. Franco-Nevada Corp. missed consensus by $8.75 million. The revenue was the result of the sale of 107,333 ounces of equivalent gold at a price of $1,291.31 per ounce. The royalties earned on the oil and gas business were reported at $22.7 million. In 2017, the company placed on the market a higher volume of gold equivalent of 122,541 ounces.
The additional contribution from the oil and gas business segment was an increase of 136.5% year-over-year. The higher price per ounce of equivalent gold sold was an increase of 2.8% year-over-year. It was not enough to offset the decline in the volume of equivalent gold sold.
The gold royalty and streaming company beat consensus on adjusted net earnings by 2 cents. The adjusted net profit of 29 cents per share was up 4 cents compared to the prior-year quarter. The company was able to achieve the result thanks to a nearly 13% decline in cost of sales to $89.4 million.
The adjusted earnings before interest, taxes, depreciation and amortization increased by 0.6% to $126.3 million and the net cash flow provided by operating activities came in at $111.3 million, a 12% decrease from the second quarter of 2017.
Cash and cash equivalents declined to $72.1 million from the end of 2017 level of $511.1 million.
The financial and operating results should prompt a stock depreciation in Franco-Nevada Corp. The current share price of the company was well below the 200-SMA line but above the 100 and 50-SMA lines:
Shareholders are in for an interesting year. The company is expected to receive higher gold and silver streams as the mine operator Lundin Mining Corp. (LUN.TO) increases throughput at Candelaria mineral deposit in Chile and First Quantum Minerals Ltd (FM.TO) reaches production ramp-up at Cobre Panama copper-gold-silver porphyry deposit. Cobre Panama is one of the largest metal deposits in the world.
Shareholders of Franco-Nevada could also benefit from a growth in the U.S. oil and gas business segment of the company in 2019. The company entered into a strategic relationship with Continental Resources to tap into gas plays in the Anadarko basin of Oklahoma,Â
However, I would wait for any significant weakness in the share price before acquiring the stock. The share price should retreat to the end of March 2018 levels, according to my preferences. Now the stock is not cheap and that is also indicated by a price-book ratio of 2.9 times and an EV-to-Ebitda ratio of 35 times. The medians of the industry are respectively 2.06 times and 9.9 times. The 52-week range is $66.19 to $86.06 per share.
For full fiscal 2018, Franco-Nevada is expected to generate a revenue of $65 million to $75 million from the oil & gas business segment and a lower attributable royalty and stream production of 440,000 to 470,000 gold equivalent ounces or GEOs. The lower GEOs are mainly due to lower grades of ore that will be processed by Lundin Mining Corp. at Candelaria mine in Chile.
In addition, the board of directors of Franco-Nevada has authorized the payment of a quarterly dividend of 24 cents per share. The company will pay the dividend on Sept. 27 to shareholders of record as of Sept. 13. If held constant, the quarterly distribution will lead to a forward annual dividend of 96 cents yielding 1.31%.
The recommendation rating is 2.8 out of 5 and the average target price is $81.27 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
