Franco-Nevada Stock Is Set for Better Times Ahead

Franco-Nevada’s [stock_market_widget type="inline" template="generic" color="default" assets="FNV.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] delivered terrific first-quarter results that beat Wall Street’s top and bottom line expectations by a big margin. The company’s revenue was up 3.8% year over year to $179.8 million, while analysts were looking for $166 million in revenue.

Franco-Nevada’s earnings per share increased a penny to $0.35 during the quarter, which was well ahead of the consensus estimate of $0.28 per share. So, the company performed way better than what was originally expected of it. Let’s see what aided Franco-Nevada’s performance last quarter.

What Drove Franco-Nevada’s Performance?

Franco-Nevada sold a total of 122,049 gold equivalent ounces (GEOs) during the first quarter of 2019, a slight improvement over the prior-year period’s sales of 115,671 ounces.

The company’s strategy of diversifying into other metals helped it beat the downturn.

More specifically, 88.4% of its revenue came from gold and other precious metals, while the remainder came from energy sales, including oil, gas, and natural gas liquids. The year over year in Franco-Nevada’s revenue was quite impressive if we consider that the company’s average realized gold price fell 2% year over year to $1,304 an ounce.

But the company’s strategy of diversifying into other metals helped it beat the downturn. Its revenue from platinum group metals (PGMs) more than doubled year over year, offsetting the decline in other areas. As such, Franco-Nevada investors can consider themselves to be lucky that the company was able to deliver a stronger-than-anticipated performance last quarter.

But don’t be surprised to see the company sustain its positive momentum in the coming quarters as a few catalysts are about to kick in.

Better Times Ahead

Franco-Nevada will soon start receiving royalties from the Cobre Panama project, which is going to be a big source of production for the company in the coming quarters. According to CEO David Harquail:

We expect even stronger numbers in the second half as Cobre Panama begins its initial deliveries, Candelaria returns to normal operations and our U.S. energy royalties continue to grow.

Franco-Nevada expects Cobre Panama to deliver approximately 160,000 gold equivalent ounces annually by 2023, so it is on track to help improve the company’s sales by a big margin.

Due to this project, the company aims to achieve production in the range of 570,000 to 610,000 gold equivalent ounces by 2023. By comparison, Franco-Nevada is on track to deliver production of 465,000-500,000 gold equivalent ounces this year.

This potential increase in Franco-Nevada’s gold equivalent ounces will help the company offset the negative impact of any decline in gold prices. In fact, analysts expect the company’s revenue to increase nearly 10% this year, while earnings are expected to increase to C$1.26 per share from C$1.17 per share a year ago.

The earnings growth is expected to gain more ground in fiscal 2020 while the top line is expected to jump nearly 16%, which is not surprising given the new catalyst that’s coming online. What’s more, Franco-Nevada is expected to clock a high single-digit earnings growth rate for the next half-decade.

So, Franco-Nevada looks all set to build upon its momentum in the coming quarters thanks to an increase in gold equivalent ounces, which is why investors should continue holding this streaming company in their portfolios.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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