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Where Does Franco-Nevada Go From Here?

By Dan Caplinger - May 2, 2018 at 9:19AM

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With major investments in place, investors want to know what's next for the streaming and royalty company.

Franco-Nevada (FNV -4.29%) has made a lot of big strategic moves over the past couple of years. On one hand, the precious metals streaming specialist has decided to branch out further into the energy sector by investing in oil and gas royalty interests in several key production areas in the U.S. and Canada. Yet Franco-Nevada has also stayed true to its gold roots, extending its already sizable exposure to the Cobre Panama mining project.

Franco-Nevada will release its first-quarter financial results on Wednesday, May 9, and investors want to know what other plans the company has to pursue further growth. With the stock having seen choppy performance so far in 2018, there's pressure on Franco-Nevada to chart a successful course forward, but shareholders are confident that the streaming company will get the job done.

Gold bars next to a yellow and gray colored chart.

Not all that glitters for Franco-Nevada is gold. Image source: Getty Images.

Stats on Franco-Nevada

 Metric

Franco-Nevada

Analyst EPS estimate

$0.26

Change from year-ago EPS

4%

Revenue estimate

$172.55 million

Change from year-ago revenue

(0.1%)

Earnings beats in past 4 quarters

4

Data source: Yahoo! Finance.

How will Franco-Nevada's earnings fare?

Investors have continued to build enthusiasm about their views for earnings at Franco-Nevada. Projections for the full 2018 year are up almost 5% from where they were just a few months ago, and investors also have higher hopes for the first quarter's final results. Even so, the stock remains under pressure, having fallen another 7% since the end of January.

Franco-Nevada's fourth-quarter results continued trends we've seen in previous quarters, as the shift in the company's strategy showed up in several ways. Gold production for the quarter was down by nearly 5,000 ounces to about 89,000, but base minerals and platinum-group metals helped to take up the slack, leading to overall total production gains. Yet some of the guidance Franco-Nevada gave pointed to a potential short-term lull in growth, with initial production projections for 2018 coming in lower than its actual numbers for the full 2017 year.

A couple of things since then bode well for Franco-Nevada. The first is that the rise in oil prices has continued, making Franco-Nevada's foray into oil and gas royalty interests potentially more valuable. It's true that the boost in prices could also make it harder for the financing provider to come up with deals that are as attractive as the ones it made when industry conditions were worse, but Franco-Nevada has followed a good strategy of negotiating favorable terms rather than stretching itself beyond a reasonable margin of safety.

In addition, the long-term potential of Cobre Panama is likely to be a game-changer for Franco-Nevada. By 2022, the company believes it could see 565,000 to 595,000 gold equivalent ounces of production, up by more than 100,000 ounces from what Franco-Nevada expects to see in 2018. Cobre Panama's potential is huge and will make up a key component of that ramp-up, and although there's risk involved, many investors are still optimistic that the play will prove to be a big winner for Franco-Nevada.

As always, the wildcard is what happens with precious metals prices. Gold has been essentially flat since the beginning of the year, moving in fits and starts as upward pressure from geopolitical fears gives way to downward pressure from rising interest rates. Silver is telling a similar story, but the white metal has given up ground so far in 2018. That's a bit surprising given silver's industrial uses and a resurgence in levels of industrial activity. While it's not impossible for Franco-Nevada to do well even when precious metals aren't, it's a lot easier of a road to profits when gold and silver are climbing.

In the Franco-Nevada earnings report, watch closely for status reports on Cobre Panama and the company's oil and gas royalty portfolio. With many of its legacy assets locked in, Franco-Nevada's newer assets will likely be what move the stock after the earnings report is released.

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Franco-Nevada Stock Quote
Franco-Nevada
FNV
$169.32 (-4.29%) $-7.59

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