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On Monday, UBS initiated coverage on shares of Franco Nev Corp (NYSE: NYSE:FNV), a prominent gold-focused royalty and stream company, with a Buy rating and a set price target of $160.00 per share. The optimism from UBS is primarily due to the anticipated growth from the Cobre Panama project, which is expected to significantly increase Franco Nev's gold equivalent ounces (GEOs).
The analyst from UBS highlighted that while Franco Nev has several smaller growth projects, the main catalyst for GEO growth is the restart of the Cobre Panama mine. This development is projected to add between 130,000 to 150,000 GEOs, a substantial increase compared to the approximately 460,000 GEOs estimated for 2024.
UBS acknowledged the uncertainties surrounding the timeline for the mine's restart but expressed confidence that it is the most probable outcome. Furthermore, the firm anticipates that news and developments related to the potential restart will serve as a positive catalyst for Franco Nev's stock.
In comparison to First Quantum (NASDAQ:QMCO), which is also involved in the Cobre Panama project, UBS suggests that Franco Nev presents a different risk-reward profile. Specifically, the firm noted that Franco Nev does not face near-term balance sheet risks if the restart is delayed beyond the estimated 2026, and it also has a lower risk of economic dilution.
Based on a forecasted 20x 2026 estimated EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization), UBS predicts approximately a 40% upside to their $160.00 per share price target for Franco Nev Corp. This valuation reflects the firm's confidence in the company's growth prospects and the potential financial benefits of the Cobre Panama mine's restart.
In other recent news, Franco-Nevada Corporation, a gold-focused royalty and streaming company, has reported a mix of results for the third quarter of 2024. Despite record gold prices leading to increased revenues, EBITDA, and earnings compared to the previous quarter, the company sold fewer gold equivalent ounces (GEOs).
The decrease, primarily due to the halted contributions from the Cobre Panama mine, was offset in part by the Tocantinzinho mine in Brazil and increased royalties from Greenstone and Yanacocha.
The company's revised revenue guidance for 2024 is now set between $1 billion and $1.1 billion, with total GEOs sold projected between 445,000 and 465,000. Franco-Nevada is actively exploring diversification opportunities, including a potential acquisition in potash. The company also anticipates an active year for transactions in precious metals, with medium-sized deals starting at $300 million.
However, ongoing transfer pricing audits with the Canada Revenue Agency may pose potential tax exposure into 2024. The company's long-term GEOs forecast remains unchanged, indicating confidence in its portfolio's performance. Lastly, discussions with President Mulino's administration regarding the resumption of operations at the Cobre Panama mine are expected in early 2024.
InvestingPro Insights
To complement UBS's bullish outlook on Franco Nevada Corp (NYSE: FNV), recent data from InvestingPro offers additional context for investors. Despite the company's current negative earnings, reflected in its P/E ratio of -36.15, InvestingPro Tips suggest that net income is expected to grow this year, aligning with the anticipated growth from projects like Cobre Panama.
Franco Nevada's financial health appears robust, with InvestingPro highlighting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." This strong financial position supports UBS's view that FNV faces lower balance sheet risks compared to peers, even if project restarts are delayed.
The company's impressive gross profit margin of 87.37% in the last twelve months underscores its efficient royalty and streaming business model. This high profitability could provide a cushion as Franco Nevada navigates the uncertainties surrounding the Cobre Panama restart.
Investors should note that Franco Nevada has maintained and raised its dividend for 17 consecutive years, demonstrating a commitment to shareholder returns. With a current dividend yield of 1.26%, the stock offers a blend of potential growth and income.
For those seeking a deeper analysis, InvestingPro offers 11 additional tips for Franco Nevada, providing a more comprehensive investment perspective.
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