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Franco-Nevada Falls on 4th-Quarter Report

- By Alberto Abaterusso

Shares of Franco-Nevada Corp. (FNV) fell 0.91% to $74.99 in after-hours trading on Tuesday after reporting financial results for the final quarter of 2018.

The Toronto-based gold royalty and stream company missed consensus estimates by 2 cents, posting adjusted earnings of 24 cents per share. Earnings declined 14.3% from the prior-year quarter.

Revenue declined 11.4% year over year to $148.2 million, missing consensus expectations by $9.17 million.

Franco-Nevada also reported figures for full fiscal 2018.

Revenue of $653.2 million, which declined 3.2% from 2017, was generated from the sale of 447,902 ounces of gold equivalent as well as from oil, gas and natural gas liquids.

Compared to 2017, gold revenue declined 6.7%, silver sales tumbled 20.3%, platinum group metals revenue decreased 12.1%, other mining assets revenue fell 23% and energy sales soared 83.2%.

Due to a 10% year-over-year decline in gold equivalent sold, Franco-Nevada reported a lower cash cost of $239 per ounce for the year. It was $265 per ounce in 2017.

Despite lower revenue, the 0.7% increase in adjusted earnings before interest, taxes, depreciation and amortization to $519.6 million was enough to drive the EBITDA margin up 3.1 percentage points to 79.6%.

In 2018, the sales turnover dropped a net income of $139 million, which was down 28.6% on a year-over-year basis, and an adjusted net income of $217 million, reflecting 9.4% upside.

In addition, free cash outflow of $514.8 million, resulting from massive investments in royalty, stream and working interests, hurt Franco-Nevada's balance sheet. As of Dec. 31, the company had $69.7 million in cash on hand and equivalents versus $511.1 million in 2017.

The gold royalty and stream operator closed the year with a higher value for royalty, stream and working interests of $4.56 billion, but issued $207.6 million in debt. So the total shareholders' equity was about $4.63 billion.

Looking ahead to 2019, Franco-Nevada guides it will produce between 465,000 and 500,000 ounces of gold equivalent from from its mining assets and generate $70 million to $85 million in revenue from its energy assets.

Depletion expenses are forecasted to range between $295 million and $325 million.

Franco-Nevada also targets production of gold equivalent between 570,000 and 610,000 ounces and energy revenue to range from $140 million to $160 million in 2023.

Shares of Franco-Nevada closed at $75.68 on Tuesday for a market capitalization of approximately $14.15 billion. The stock gained 7% over the 52 weeks through March 19 and is now trading above the 200-, 100- and 50-day simple moving average lines. The closing price on Tuesday was 30% off the 52-week low of $58.26 and 4.1% below the 52-week high of $78.82.

The 14-day relative strength index of 49.86 suggests the stock is neither oversold nor overbought.

Wall Street issued an overweight recommendation rating for Franco-Nevada with an average target price of $108.81 per share.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.