On Mar 11, we issued an updated research report on Franco-Nevada Corporation (FNV - Free Report) . The company appears to be on a promising long-term trajectory, aided by its healthy portfolio of streaming and royalty agreements.
Franco-Nevada’s shares have appreciated 11.2% in the past year, outperforming the industry’s growth of 4.0%.
Momentum in Oil & Gas Portfolio to Aid 2018 Results
Performance from Oil & Gas remains robust, with revenues doubling to $68 million in the first three quarters of 2018 from $33 million in the prior-year period. This can be attributed to stronger oil prices and increased production from the recently-added U.S. assets. Drill activity was higher and drilling productivity also remained better than expected.
Backed by better-than-expected contribution from its previously-acquired U.S. assets and stronger oil prices, Franco-Nevada now anticipates generating $85-$88 million in revenues from oil & gas for 2018, higher than the previous expectation of $75-$85 million.
Strategic Relationship With Continental Resources A Key Catalyst
In October 2018, Franco-Nevada contributed $214.8 million to close its previously-announced transaction with Continental Resources, Inc., in order to acquire Oil & Gas mineral rights in the SCOOP and STACK plays of Oklahoma — two of the most economic and attractive plays in North America. The company has also committed, subject to satisfaction of agreed upon development thresholds, to spend up to $300 million over the next three years to acquire additional mineral rights through a newly-formed entity.
This represents a new business development opportunity for Franco-Nevada. It gets an acquisition vehicle, which provides the ability to acquire assets at the grassroots level or directly from individual owners. This is a segment of the market previously inaccessible to the company due to lack of staff or resources for carrying out such smaller-scale acquisitions. More importantly, Franco-Nevada benefits from the operators’ drill plans, along with their knowledge of local land title and geology.
Poised Well for the Long Term
Franco-Nevada strives to generate 80% of revenues from precious metals, including gold, silver and PGM, over the long term. With around 85% of revenues generated from precious metals, year to date, the company has the option to consider diversification opportunities outside the precious metals space and increase exposure to other commodities while maintaining its long-term target.
Further, Franco-Nevada appears to be on a promising long-term trajectory thanks to a healthy portfolio of streaming and royalty agreements put in place years ago. With more mines coming online in the next several years, it will benefit from higher levels of precious metal sales and higher prices.
The company maintains a solid growth outlook till 2022, projecting production at 565,000-595,000 GEOs. Franco-Nevada expects to achieve gold and production for 2018 within its previously-provided guided range, with GEOs expected to total between 445,000 and 450,000. The Cobre Panama project will likely be fully ramped-up by 2022. Moreover, the company plans expansion or start-up of a number of smaller mines in 2019, and 50% expansion of Stillwater by 2021. Furthermore, Franco-Nevada’s balance sheet remains debt free.
Franco-Nevada Corporation Price and Consensus
Zacks Rank & Other Stocks to Consider
Franco-Nevada currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the Basic Materials sector are Ingevity Corporation (NGVT - Free Report) , Innospec Inc. (IOSP - Free Report) and Materion Corporation (MTRN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingevity has an expected earnings growth rate of 17.9% for 2019. The company’s shares have rallied 42.3% over the past year.
Innospec has a projected earnings growth rate of 3.5% for the current year. The stock has appreciated 20% in a year’s time.
Materion has an estimated earnings growth rate of 12.6% for 2019. The company’s shares have gained 8% in the past year.
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