A month has gone by since the last earnings report for Franco-Nevada (FNV). Shares have lost about 5.3% 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 the most recent earnings report in order to get a better handle on the important drivers.
Franco-Nevada Q2 Earnings Top, Revenues Miss Estimates
Franco-Nevada reported adjusted earnings of 48 cents per share in second-quarter 2020, up 41.2% from the prior-year quarter. Additionally, the bottom line surpassed the Zacks Consensus Estimate of 46 cents.
The company generated revenues of $195 million in the reported quarter, reflecting a year-over-year improvement of 14%. The top-line figure, however, missed the Zacks Consensus Estimate of $216 million. In the reported quarter, 92.5% of revenues were sourced from gold and gold equivalents (69.9% gold, 10.3% silver, 11% platinum group metals and 1.3% from other mining assets) and 7.5% from energy (oil, gas and natural gas liquids).
The company sold 104,330 Gold Equivalent Ounces (GEOs) in the quarter, down from the prior-year quarter’s 107,774 GEOs. This year-over-year decline of 3.2% resulted due to lower contributions from the Antapaccay, Goldstrike and Sabodala mines, offset by higher contributions from Cobre Panama and Hemlo.
During the reported quarter, adjusted EBITDA increased 14.5% to $158 million year over year.
In second-quarter 2020, the average gold price was $1,711 per ounce, 30.6% higher than the year-ago quarter’s. Silver prices averaged $16.38 per ounce in the quarter, up 10% year over year. Platinum prices went down 6.2% year over year to $790 per ounce, while palladium prices jumped 41.6% year over year to $1,965 per ounce.
Financial Position
The company had $378.5 million cash in hand as of Jun 30, 2020, up from the $132.1 million reported as of Dec 31, 2019. It recorded operating cash flow of $345.4 million in the first half of the current year, up from $262.7 million in the first half of 2019.
Franco-Nevada is debt free and uses its free cash flow to expand the company’s portfolio and pay dividends. The company’s board has announced a quarterly dividend of 26 cents per share, payable on Sep 24 to shareholders of record as of Sep 10, 2020.
Guidance
Franco-Nevada has initiated the ongoing-year guidance. The company now expects attributable royalty and stream sales between 475,000 GEOs and 505,000 GEOs from its mining assets, and revenues of $60-$75 million from energy assets in 2020. The WTI oil price and Henry Hub natural gas price are assumed to average $40 per barrel and $2.00 per mcf, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Franco-Nevada has an average Growth Score of C, however its Momentum Score is doing a bit 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 D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. 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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