Stocks’ Details 

Franco-Nevada Corporation (TO: FNV) 

Cobre Panama Project & Higher GEOs are Key Catalysts:  Franco-Nevada Corporation (TO: FNV) is engaged in operating as a gold-focused royalty and stream company and has a diversified portfolio in the United States, Canada, Mexico and Australia, to name few. The company’s portfolio is aggressively managed with the purpose to maintain more than 80% of revenue from valuable metals.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: FNV announced its quarterly results, wherein the company reported total revenue of US$258.1 million, as compared to US$148.2 million reported in the year-ago period. The company reported adjusted net income of US$110.8 million, as compared to US$44.7 million in the previous corresponding period. Adjusted net income per share for the quarter stood at US$0.59, as compared to US$0.24 in the previous corresponding period. The company benefited from the Cobre Panama project, robust production at other key assets and higher metals prices performance in the quarter under review. During the quarter, Gold Equivalent Ounces (“GEOs”) sales came in at 153,396, up from 104,877 sales of GEOs in the year-over period.

4QFY19 Highlights (Source: Company Reports)

FY2019 highlights: The company recorded total revenues of US$844.1 million, as compared to US$653.2 million reported in FY18. Adjusted EBITDA came in at US$673.4 million. The company reported adjusted net income of US$341.5 million, as compared to US$217 million in the previous corresponding period. Adjusted net income per share for the quarter stood at US$1.82, as compared to US$1.17 in the previous corresponding period. At the end of the year, the company’s cash balances stood at US$132.1 million. During the quarter, the company issued 549,400 shares under its ATM Program worth $53 million. Funds generated from the ATM Program were utilized to repay the debt at the end of the year, and Franco-Nevada is now debt-free. 

Outlook: For FY20, the company expects royalty and stream sales to be in the range of 550,000 to 580,000 GEOs from its mining assets. The group expects its energy revenue in the range of $80 to $95 million. The company expects royalty and stream sales from mining assets in the range of 375,000 to 405,000 GEOs. The Company estimates depletion expense to fall in the range of $260 to $290 million.

EV/EBITDA Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock is quoting at CAD146.93 with a market capitalization of ~$27.7 billion. At the last traded price shares of FNV was more tilted towards its 52-week high price level, despite a free fall across the board and delivered a price return of 42% on a YoY basis, about 10% on a YTD basis and increased marginally over the past five trading session, where the broader trend was steeply bearish. Also, the group had reported a stellar result recently, which gives the momentum to the share price. FNV has consistently maintained EBITDA margin of above 70% over a decade long period, which is well above the industry average of 30.4% and Return on Equity of 7.1% for FY19 is also significantly higher against the industry average ROE of 3.9%, which creates a competitive advantage for the group against the industry peers. The stock is currently trading at ~26x EV/EBITDA (NTM) multiple and based on the above-mentioned factors; we expend this multiple to expand further. Thus, we recommend a “Buy” rating on the stock at the closing market price of CAD146.93, down ~8% as on 9 March 2020.

1-Year daily price chart (as on March 09, 2020). Source: Thomson Reuters 

Canadian Natural Resources Limited (TO: CNQ)

Enhancing Shareholder’s Value Via Dividend & Repurchase are Key Positives: Canadian Natural Resources Limited (TO: CNQ) is one of the top self-regulating energy companies in Canada involved in the production, exploration & development of crude oil and natural gas. The company’s portfolio of assets is located in North America, the UK North Sea and Offshore Africa.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: CNQ reported its quarterly results with adjusted earnings per share from continuing operations at 58 cents, as compared to a loss of 21 cents reported in the year-ago quarter, owing to strong production and higher liquids realizations. The group’s free cash flow totalled to $994 million after adjusting capital expenditure and dividend payments. The company returned $444 million as dividend and $140 million as share repurchase to its shareholders. The group declared a dividend of 42.5 per share, up 13% (20^th consecutive increase).

4Q19 Financial Highlights (Source: Company Reports)

Production & Prices: The company’s production of oil equivalent per day (BOE/d) reached to 1,156,276 barrels, up from 1,081,368 BOE/d from the prior-year quarter. Oil and natural gas liquids (NGLs) output increased from 833,358 barrels per day (Bbl/d) to 913,782 Bbl/d, during the quarter. Natural gas for the quarter came in at 1,455 MMcf/d, as compared to 1,488 MMcf/d in the year ago period.

Outlook: The company is expected to spend ~$3.95 billion as capex in FY20. Liquids output is expected to be in the range of 910,000 Bbl/d and 970,000 Bbl/d, natural gas production is forecasted within the range of 1,360-1,420 MMcf/d. However, oil price fiasco is likely to weigh on the group’s performance in FY20. After the Organisation of Petroleum Exporting Countries (OPEC) unable to fix a deal with it allies which together known as OPEC+, with respect to an oil production cut down to support oil prices amid lower oil demand as COVID-19 infected cases soaring up. Following Saudi Arabia's announcement, the Brent crude oil futures nosedived by more than 32% yesterday, the biggest intraday fall since the Gulf War in 1991 and traded at its lowest level since February 2016. Crude oil is finished product for the company; therefore, a lower oil price would hit its top line too.

Stock Recommendation: After OPEC’s announcement to slash oil prices in the international market, the Brent crude oil futures nosedived by more than 32% in intraday. Shares of CNQ tracking the calf path and chasing the movement in oil prices. Over the last five trading session, it shares have lost value by more than 37%, slump approximately 45% in the past three months and traded well below its long-term and short-terms crucial support levels of 200-day, 50-day, 20-day, 10-day, and 5-day simple moving averages (SMAs), which typically considered as a bearish trend in the stocks. However, oil exploration companies across the board moving in the same direction as it is sectoral pain and not restricted to a particular company, hence a reversal trend in the oil prices could also move CNQ’s stocks up as well. Therefore, based on above rationale, we have a “Watch” stance at the closing price of CAD 21.43, down ~29.2% (March 09, 2020), while we look for the growth catalysts in near term.

1-Year daily price chart (as on March 09, 2020). Source: Thomson Reuters

Disclaimer

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