Franco-Nevada Corporation

Franco-Nevada Corporation (TSX: FNV) is the leading gold-focused royalty and streaming company and has the largest and most diversified portfolio of cash-flow producing assets.

Q1FY20 Financial Highlights: FNV impresses with its quarterly results, wherein the topline was benefitted by higher gold prices while bottom-line was affected due to the inclusion of impairment charges amounting USD 271.7 million. Revenue, during the first quarter of FY20, stood at USD 240.5 million, reflecting a growth of 33.8% over the previous corresponding quarter. Average Gold Price, during the quarter, stood at USD 1,583 per ounce versus USD 1,304 per ounce in the previous corresponding period (pcp). The Company reported an operating loss of USD  143.4 million, as compared to an operating profit of USD 80 million in pcp, due to a surge in cost of sales, a slightly higher depletion and depreciation and inclusion of impairment of royalty, streams and working interests. Adjusted EBITDA soared to USD 192.7 million, as compared to USD 140.9 million in pcp. The Company reported a net loss of USD 98.8 million, as compared to a profit of USD 65.2 million in Q1FY20. The Company ended the quarter with cash and cash equivalent of USD 209.8 million, while total assets stood at USD 4,981 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The income of the company is directly correlated with international gold prices. Correction in gold prices would result in lower-income and cash flow for the company.

Stock Recommendation: The stock of FNV stood resilient in the recent past, amidst a free-fall in the global equity market. Investors are leaning towards defensive asset class due to price volatility in the equity market, which has resulted in improved gold prices. The Company has an excellent track record of reporting sustainable profit and cash flow over the years, due to its commanding market share and improved margins. During Q1FY20, the Company reported improved Adjusted EBITDA margin at 80.1%, as compared to 78.4% in pcp. The Company has a debt-free balance sheet and uses its free cash flow to expand its portfolio and pay dividends, which is commendable. Investors should note that the FNV stock was trading above the 200-days simple moving average of CAD 151.93, which indicates a bullish trend. The Company’s business is resilient, and it has a diversified portfolio that includes 56 producing assets consisting of four larger cash-flowing assets, which ensures stable cash flows. The Company’s bottom-line was marred by the inclusion of impairment expense amounting USD 271.7 million, and we believe this is a one-off scenario. We are positive that the group continues to drive the growth from its gold assets while the performance of the energy assets remains a concern owing to the high volatility in crude oil prices. The stock appreciated ~8% in the last one month, outperforming the index by ~5%. Considering the above-mentioned fact, current price movement, we recommend a ‘Hold’ rating at the closing price of CAD 188.15 on July 06, 2020.

FNV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

B2Gold Corp

B2Gold Corp (TSX: BTO) is a mining company based out of Canada. The Group is engaged in the business of gold production from four operating mines. BTO also has a range of projects related to exploration and evaluation in Chile, Finland, Burkina Faso, Colombia and Mali.

Recent News

On 12^th June 2020, B2Gold Corp announced the declaration of cash dividend for Q2 FY2020 of $ 0.02/share.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, USD, thousand)

(Source: Quarterly Report, Company Website) 

In the first Quarter of the financial year 2020, driven by higher production of gold from Fekola mine, Masbate mine and Otjikoto mine for the period, the gold revenue increased to US$ 380,298 thousand (Q1 FY 2019: US$ 263,982 thousand). Driven by higher revenue, the gross profit stood at US$ 192,399 thousand in Q1 FY2020 (Q1 FY 2019: US$ 92,560 thousand). The operating income increased to US$ 179,425 thousand in the first quarter of the financial year 2020 (Q1 FY 2019: US$ 74,143 thousand), reflecting higher revenue and lower operating expenses. The profit before income tax stood at US$ 159,887 thousand in the Q1 financial year 2020 (Q1 FY 2019: US$ 72,884 thousand). The net income increased to US$ 83,008 thousand in Q1 FY2020 (Q1 FY 2019: US$ 26,523 thousand). The basic and diluted earnings per share stood at $0.07 for the Q1 financial year 2020 versus $0.02 in Q1 FY2019. The cash balance as on 31^st March 2020 stood at US$ 207,939 thousand versus USD 140,596 thousand as on 31^st December 2019. The total assets as on 31^st March 2020 stood at US$ 2,816,429 thousand versus USD 2,683,071 thousand as on 31^st December 2019.

Share Price Performance

Daily Chart as of 6^th July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

B2Gold Corp shares closed at CAD 7.61 at the time of writing after the market close on 6^th July 2020. Stock’s 52-week High is CAD 8.02 and Low is CAD 3.12, respectively.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. Liquidity and interest rate risks could affect the operations of the Company. The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well.

Conclusion

The Company has shown an increase in financial performance in the first quarter of the financial year 2020. Both the top-line and the bottom-line performance have increased, with improved profitability for the period. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability. The liquidity position of the company has improved, and the balance sheet remained well-positioned. The Group operations are impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening balance sheet and reducing costs to preserve cash. In Q1 FY2020, BTO suspended operations at Nicaraguan, due to coronavirus, while managed to maintain the production guidance and financial guidance for the financial year 2020.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 7.61 (as on 6^th July 2020).

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.