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Why Is Franco-Nevada (FNV) Down 3.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Franco-Nevada (FNV). Shares have lost about 3.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Franco-Nevada due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Franco-Nevada Q4 Earnings & Revenues Miss Estimates

Franco-Nevada delivered adjusted earnings of $44.7 million or 24 cents per share in fourth-quarter 2018, down from the $52.1 million or 28 cents per share reported in the prior-year quarter. In addition, the EPS figure marginally missed the Zacks Consensus Estimate of 26 cents.

The company generated revenues of $148.2 million in the reported quarter, down 11.4% year over year. The revenue figure also lagged the Zacks Consensus Estimate of $162 million. In the fourth quarter, 87.7% of the revenues were sourced from gold and gold equivalents (66.3% gold, 10.9% silver, 7.6% platinum group metals and 2.9% other mining assets) and 12.3% from energy (oil, gas and natural gas liquids).

The company sold 104,877 Gold Equivalent Ounces (GEOs) in the quarter, down 12.5% from 119,839 GEOs in the prior-year quarter.

In the Dec-end quarter, adjusted EBITDA was $118.7 million, down 7.3% from $128.0 million witnessed in the comparable period last year.

Prices
 
At the end of the Oct-Dec quarter, average gold price was $1,228 per ounce, approximately 3.6% lower than the year-ago quarter. Silver prices averaged $14.55 per ounce in the quarter, down 12.9% year over year. Platinum too fell 10.7% year over year to $822 per ounce, while palladium prices were up 16.5% year over year to $1,157 per ounce.

Financial Position

Franco-Nevada’s cash and cash equivalents fell to $69.7 million at the end of 2018, down substantially from the $511 million reported at the end of 2017. The company recorded operating cash flow of $474.8 million in 2018 compared with $488.6 million in 2017.

Franco-Nevada’s board of directors has announced a quarterly dividend of 24 cents per share. This dividend will be paid on Mar 28, to shareholders of record on Mar 14, 2019.

2018 Results

Franco-Nevada reported adjusted earnings per share of $1.17 in 2018, up 8.3% from prior year’s $1.08. The reported figure, however, missed the Zacks Consensus Estimate of $1.18.

Sales decreased 3.2% year over year to $653.2 million in 2018. Also, the top-line figure missed the Zacks Consensus Estimate of $663.6 million. In 2018, Franco-Nevada’s backlog was up 19%. The company sold 447,902 GEOs in 2018, down 10% year over year.

2019 Guidance
 
Franco-Nevada expects attributable royalty and stream production to total 465,000-500,000 GEOs from its mining assets. The company anticipates revenues between $70 million and $85 million from its energy assets, down from the previous guidance of $85-$88 million. It forecasts WTI oil price to average $55 per barrel. It estimates depletion expense of $295-$325 million.
 
Five-Year Outlook

Subsequent to the end of the third quarter, Franco-Nevada had made the final installment of the $1-billion funding commitment for the Cobre Panama project. The company expects this project to reach its initial-mill throughput capacity of 85 million ton per year, before 2023. Franco-Nevada expects to produce nearly 570,000-610,000 GEOs by 2023. Energy revenues, at WTI oil price of $55 per barrel, are estimated between $140 million and $160 million.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Franco-Nevada has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Franco-Nevada has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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