In Q2/17, Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) posted an adjusted earnings per share of $0.26, which was "above our expectation of $0.23 and consensus of $0.24, on the back of stronger GEOs sold," Andrew Kaip of BMO Capital Markets noted in an Aug. 8 report. "Gold equivalent delivered was 123 Koz, above our estimate for 119 Koz."
The company's cash flows also were better than BMO projected. "Operating cash flow of $127M was ahead of our expectation for $112M, benefitting from ~$7M in working capital," Kaip wrote, while free cash flow of "($11M) came in above our estimate for ($53M). . .FNV finished the quarter with $614M in cash and equivalents."
In terms of outlays, Franco, also in Q2/17, passed the halfway mark in its financing for development of the Cobre Panama mine. "FNV contributed $52.4M at Cobre Panama, reaching $564.8M of its $1B commitment," said the BMO analyst.
The company anticipates achieving its previously stated 2017 production guidance for gold equivalent ounces of "470–500 Koz, where it expects to be at the top end of the range," Kaip reported.
As for oil and gas, "revenue of $9.6M was slightly below our estimate for $10.9M," the report explained, however, the company's full year 2017 guidance for revenue from those commodities remains the same at $35–45M.
Summing up the financials, Kaip said, "FNV posted another solid quarter, building off a strong initial start to 2017, and now expects to be at the top end of its GEO guidance range."
The research report additionally provided these corporate development updates:
1. "FNV purchased a second package of mineral titles in the core of the STACK shale play for $27.8M," Kaip indicated. The deal, which was effective as of June 1, is slated to close in November of this year.
2. The second component of Franco's Midland acquisition "is expected to close in Q3/17, with an adjusted purchase price of ~$107M," wrote Kaip. The first portion closed for $89.8M in Q2/17.
Franco-Nevada is currently rated Market Perform and is trading at about $92.08 per share. BMO's target price on the company is $100 per share.
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Disclosures from BMO Capital Markets, Franco-Nevada Corp., Aug. 8, 2017
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Franco-Nevada.
Disclosure 6C: Franco-Nevada is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Franco-Nevada.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Franco-Nevada.
Disclosure 9: BMO Capital Markets makes a market in Franco-Nevada.
Disclosure 16: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of Franco-Nevada.
Disclosure 17: Franco-Nevada has paid or reimbursed some or all of the BMO Nesbitt Burns Inc. analysts travel expenses.
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