Franco Nevada Corporation (NYSE: FNV) has recently been initiated with a Buy recommendation by UBS, a prominent player in the gold-focused royalty and streaming sector.
UBS has set a price target of $160.00 per share for Franco Nevada, driven by the anticipated growth from the Cobre Panama project. The restart of the Cobre Panama mine is seen as the main catalyst for growth, potentially adding between 130,000 and 150,000 gold equivalent ounces (GEOs) to the company"s output. UBS expresses confidence in the timing of the mine"s restart and believes that news and updates regarding the potential restart will positively impact Franco Nevada"s stock performance.
UBS"s analysis includes a projected 20x EV/EBITDA multiple for 2026, suggesting an upside potential of approximately 40% to the $160.00 price target for Franco Nevada Corp. The company"s estimated output for 2024 is around 460,000 GEOs. In the third quarter of 2024, Franco Nevada reported mixed results, with record gold prices contributing to increased revenue, EBITDA, and profits compared to the previous quarter. However, the company experienced a decline in the number of GEOs sold due to the cessation of contributions from the Cobre Panama mine. This decrease was somewhat offset by production from other mines. Franco Nevada has revised its revenue guidance for 2024 to a range of $1 billion to $1.1 billion, with total GEO sales now forecasted between 445,000 and 465,000.
Franco Nevada is actively seeking diversification opportunities and is considering a potential acquisition in the potash sector to broaden its portfolio. The company expects an active year for transactions in the precious metals space, with mid-sized deals starting at $300 million. However, it faces challenges, including ongoing transfer pricing reviews with the Canada Revenue Agency, which could result in tax charges extending into 2024. Despite these hurdles, Franco Nevada remains confident in its long-term GEO forecast and the performance of its diverse asset portfolio.
The company is engaged in discussions with the government regarding the resumption of operations at the Cobre Panama mine, with talks expected to take place in early 2024. The potential for increased production from Cobre Panama is closely monitored by investors, as it could significantly impact the company"s financial performance in the coming years.
Despite a negative price-to-earnings ratio, Franco Nevada"s financial health appears robust. The company has more cash than debt on its balance sheet, with cash and cash equivalents exceeding current liabilities. This strong financial position supports the view that Franco Nevada has lower balance sheet risks compared to its peers, even in the event of delays in project restarts. The company"s high gross margin of 87.37% over the last twelve months highlights the efficiency of its royalty and streaming business model. Franco Nevada has also maintained and increased its dividend for 17 consecutive years, currently offering a dividend yield of 1.26%. This combination of potential growth and income makes Franco Nevada an attractive option for investors in the gold market.