Franco-Nevada (TSX:FNV) went public in the U.S. market more than a decade ago, and over that time, the company has established itself as a major player in an important niche in the natural resources industry. Franco-Nevada neither mines gold nor drills for oil, but by helping to finance projects that mining companies and oil drillers want to pursue, it ensures it can get a cut of the profits. That's been a winning business model lately, and throughout its history as a publicly traded company, Franco-Nevada has stood out for one thing that it's done consistently well: paying and raising its dividend regularly over time.
Coming into Wednesday's first-quarter earnings report, Franco-Nevada investors had modest expectations for favorable performance on the precious-metals streaming specialist's top and bottom lines. Franco-Nevada did far better than most had expected in producing earnings growth, and executives have high hopes for the rest of the year.
Franco-Nevada starts 2018 strong
Franco-Nevada's first-quarter results were encouraging. Revenue was up just a fraction of a percent to $173.1 million, but that was still better than the slight decline that most of those following the stock were expecting. Net income showed much better results, rising 43% on an adjusted basis to $63.9 million. That worked out to adjusted earnings of $0.34 per share, which was quite a bit better than the consensus forecast among analysts for just $0.27 per share on the bottom line.
From a production standpoint, Franco-Nevada's shift toward greater oil and gas exposure proved vital to its sustained growth. Total precious-metals production was off more than 15,000 gold equivalent ounces to about 113,400 ounces, with double-digit-percentage declines in gold, silver, and platinum-group metals. Production of other minerals also was down, cutting total metals production by 12% to 115,671 gold equivalent ounces. Yet the oil and gas segment saw revenue jump by nearly three-quarters to $19 million, and that single-handedly helped Franco-Nevada post record revenue despite the production drop.
Franco-Nevada's product mix has shifted. Precious metals accounted for 87% of production, leaving energy to pick up the rest. The breakdown within metals was 68% gold, 14% silver, and 5% platinum-group metals. Geographically, more than 80% of revenue came from the Americas, split roughly evenly between Latin America and the northern part of North America, combining the U.S. and Canada.
CEO David Harquail praised the company's progress. "Franco-Nevada's diversified portfolio continues to deliver," Harquail said, "with record quarterly revenue and net income being realized in the first quarter." The CEO also said that Franco-Nevada's debt-free balance sheet gives it plenty of opportunities to capitalize on future project financing.
Can Franco-Nevada keep up the good work?
Franco-Nevada has several current financing projects that it thinks will start paying off. Harquail pointed to Tasiast, Subika, and Candelaria as good candidates for greater production, and the streaming giant also believes that Cobre Panama will start producing within the next year. The CEO also knows that the oil and gas area will keep bulking up overall production for the foreseeable future, especially with the recent rise in oil prices.
For the 11th straight year, Franco-Nevada announced a dividend increase. The company made what has now become an expected $0.01-per-share boost to its quarterly payout, with shareholders to receive $0.24 per share every three months. That works out to just a 1.3% dividend yield, but the streaming specialist noted that when you compare the payout to the cost basis of original investors at the IPO in the late 2000s, the effective yield rises above 8%.
Franco-Nevada shareholders took the news in stride, and the stock traded on either side of the unchanged mark on Thursday following the late-Wednesday announcement. The company has done a good job of getting profits during good times and bad in the natural resources industry, and now that the energy industry is back on an upswing, Franco-Nevada should have an excellent chance to pick up good assets and reap the rewards well into the future.