Franco-Nevada Corp

Franco-Nevada Corp (TSX: FNV) is a stream and royalty Company with a focus on gold. The Company owns a portfolio of working interests, stream and royalty, covering properties at Africa, Australia, Canada, United States and Latin America. In Canada, the properties include Brucejack, Canadian Malartic, Hemlo, Golden Highway, Detour Lake and Sudbury.

Recent News

The Company attended the Global Mining Symposium from 1 September 2020 to 3 September 2020.

Financial Highlights – Q2 and H1 Financial Year 2020 (30 June 2020, USD, million)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2020, driven by an increase in gold, silver and PGM’s for the period, the revenue in H1 FY2020 stood at USD 435.9 million (H1 FY2019: USD 350.3 million), while the revenue in Q2 FY2020 increased to USD 195.4 million (Q2 FY2020: USD 170.5 million). The gross profit stood at USD 247.6 million in H1 FY2020 (H1 FY2019: USD 170.7 million), and gross profit in Q2 FY2020 stood at USD 115.1 million (Q2 FY2019: USD 84.2 million), reflecting higher revenue.

Due to higher operating expenses for the period, the Company reported an operating loss of USD 37.8 million in H1 FY2020 (H1 FY2019: operating income of USD 159 million), while the Company reported an operating income of USD 105.7 million in Q2 FY2020 (Q2 FY2019: USD 79 million). In H1 FY2020, the Company reported a net loss of USD 4.4 million (H1 FY2019: net income of USD 129.2 million), while the Company reported net income of USD 94.4 million in Q2 FY2020 (Q2 FY2019: USD 64 million). The basic and diluted loss per share stood at $0.02 in H1 FY2020 (H1 FY2019: basic and diluted earnings per share of $0.69). The cash balance as on 30 June 2020 stood at USD 378.5 million (31 December 2019: USD 132.1 million).

Share Price Performance

FNV 1 Year technical chart. Source: Refinitiv, Thomson Reuters

Franco-Nevada Corp shares closed at CAD 190.11 at the time of writing after the market close on 4 September 2020. Stock 52 week High and Low were CAD 222.15 and CAD 105.93, respectively.

Key Risks

The Company’s performance may be impacted by any hazards related to mining and development on properties in which it holds interest, stream and royalty. The business could also be impacted by unexpected metallurgical and geological conditions, flooding, slope failures and other natural disasters. The Company may fail to integrate the acquired assets, which may lead to integration risk.

Conclusion

In H1 FY2020, the top-line performance has improved, while bottom-line performance declined and remained in the negative zone for the period. The liquidity position has increased for the period, with the well-positioned balance sheet. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability. The Company expects attributable sales from royalty and stream to be in between 475,000 GEOs to 505,000 GEOs from mining assets in FY2020. The Company expects revenue from energy assets to be in between $60 million to $75 million in FY2020.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 190.11 (as on 4 September 2020).

Disclaimer

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