Franco-Nevada Corp (TSX: FNV) is a precious-metals-focused royalty and investment company. The company owns a diversified portfolio of precious metals and royalty streams, which is actively managed to generate the bulk of its revenue from gold, silver, and platinum.

Key Updates:

• Increase in cash flows: The company reported a higher cash flow from operations of USD 676.4 million in 9MFY21, as compared to USD 557.6 million in pcp. This is expected to support the overall liquidity of the company.
• Lower cash conversion period: The company takes lesser time to convert its inventories to cash flows, as compared to the industry median. This indicates higher operational efficiencies. Notably, cash conversion period stood at 43.5 days in Q3FY21, as compared to the industry median of 53.2 days.
• Robust profitability margins: The company is commanding higher margins against an industry, which indicates improved operational efficiencies. Notably, in Q3FY21, the company reported EBITDA margin and operating margin of 85.3% and 62.2%, respectively, higher than the industry median of 41% and 27% respectively. The group also recorded higher net margin at 52.5% versus the industry median of 13%.

Q3FY21 Financial Highlights:

• FNV announced its quarterly results wherein the group posted its revenue of USD 316.3 million, higher than USD 279.8 million in pcp. The growth was driven by higher income from silver segment and other mining assets.
• The quarter was marked by slightly higher cost of sales, while general and administrative expense remained at par with previous year. Operating income stood at USD 196.8 million, surged from USD 178.3 million in pcp.
• Net income stood at USD 166 million, versus USD 153.9 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

In Q3FY21, the company reported strong performance from the Energy segment driven by higher realized prices across the portfolio coupled with the acquisition of royalty interests in the Haynesville shale play at the end of FY20. Notably, during the quarter, the group derived USD 55.1 million of revenue from the energy segment, v/s USD 22.8 million in pcp, which furthers supported the overall income of the company.

We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Pretium Resources Inc, Osisko Gold Royalties Ltd. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 168.39 on January 20, 2022.

One-Year Technical Price Chart (as on January 20, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.