In a March 9 research note, CIBC analyst Cosmos Chiu reported that Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) significantly beat earnings estimates in Q4/19 due to record sales of gold equivalent ounces and revenues.
Thus, CIBC increased its target price on the gold royalty streaming company to CA$162 per share from CA$157. In comparison, the stock, rated Outperformer by the bank, is trading now at around CA$140.45 per share.
Chiu highlighted that Franco-Nevada's strong Q4/19 included record sales of 153,396 gold equivalent (Au eq) ounces. This led to full-year 2019 sales of 516,438 ounces. The total was well above the high end of guidance of 465,000–500,000 ounces (465–550 Koz) and CIBC's forecast of 498 Koz. The high producer was the Cobre Panama mine in Panama, from which Franco Nevada received 43,554 ounces Au eq, also above guidance of 20–40 Koz.
With the strong sales, Franco Nevada posted total 2019 revenue of $844 million, surpassing consensus' estimate of $814 million, Chiu pointed out. Full-year oil and gas revenue of $115.9 million contributed about 14% to the total revenue. This was driven by oil and gas revenue in Q4/19 of $30 million, which exceeded projections.
Q4/19 adjusted earnings per share (EPS), cash flow per share (CFPS) and EBITDA all exceeded consensus and CIBC's estimate. Adjusted EPS was $0.59 versus $0.49, CFPS was $0.98 and EBITDA was $202 million.
At the end of 2019, Franco-Nevada had $132 million in cash and $1 billion-plus in available liquidity.
Chiu also noted that Franco-Nevada's 2020 production guidance of 550–580 ounces of Au eq is solid and reflects a more than a 10% year-over-year (YOY) increase. A primary contributor will be Cobre Panama, in its first full year of operation. CIBC forecasts 555 Koz and consensus estimates 560 Koz. Guidance is expected to be offset by a YOY oil and gas underperformance of about 25%, assuming a West Texas Intermediate oil price of $45 per barrel. 2020 oil and gas revenue is forecast at $80–90 million.
By 2024, Franco Nevada aims to produce 580–610 Koz Au eq versus CIBC's projection of 570 Koz.[NLINSERT]
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Disclosures from CIBC, Franco-Nevada Corp., Earnings Update, March 9, 2020
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Important Disclosure Footnotes for Franco-Nevada Corporation (FNV.TO)
• 2a These companies are clients for which a CIBC World Markets company has performed investment banking services in the past 12 months: Franco-Nevada Corporation
• 2e CIBC World Markets Inc. has received compensation for investment banking services from these companies in the past 12 months: Franco-Nevada Corporation
• 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Franco-Nevada Corporation
• 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by these companies: Franco-Nevada Corporation
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