Acquisitions And Cobre Panama Mining Projects Will Shape Bright Future

Key Takeaways

• Strategic acquisitions and mine contributions are expected to boost revenue growth and earnings significantly in 2025.
  
• Strong cash flow and no debt allow for further acquisitions and increased dividends, enhancing long-term margins.
  
• Geopolitical risks, legal uncertainties, commodity price volatility, and project execution challenges could threaten Franco-Nevada's revenue stability and growth prospects.

Catalysts

Operates as a royalty and stream company focused on precious metals in South America, Central America, Mexico, the United States, Canada, Australia, Europe, and internationally.

• The company announced several strategic acquisitions in 2024, including gold stream investments and royalties that could add 85,000 to 95,000 GEOs per annum to their production profile, impacting future revenue growth.
  
• New contributions from recently acquired and ramping-up mines such as Sibanye's Western Limb operations, Porcupine, Yanacocha, Tocantinzinho, Greenstone, and Salares Norte are expected to significantly boost earnings in 2025.
  
• Franco-Nevada's financial model shows strong cash flows and no debt, allowing them to re-invest in further acquisitions and increase dividends, which could positively impact net margins over the long term.
  
• The company is optimistic about potential resolutions regarding the Cobre Panama mine, which could resume generating significant GEOs annually, thereby increasing both revenue and earnings.
  
• Expansion plans for existing assets, such as full-year contributions from recently started mines and higher production forecasts from key operations in upcoming years, are projected to drive a 25% increase in revenue for 2025, thus positively impacting overall earnings.

Franco-Nevada Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Franco-Nevada's revenue will grow by 14.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 50.1% today to 52.5% in 3 years time.
• Analysts expect earnings to reach $858.0 million (and earnings per share of $5.23) by about April 2028, up from $552.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.9x on those 2028 earnings, down from 59.3x today. This future PE is greater than the current PE for the US Metals and Mining industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Franco-Nevada Future Earnings Per Share Growth

Risks

• The exposure to geopolitical and operational risks in South Africa through the Sibanye-Stillwater PGM stream could impact Franco-Nevada's revenue stability if political or economic conditions deteriorate.
  
• Cobre Panama's ongoing legal issues and potential changes to ownership or government agreements pose a risk to guaranteed revenue streams, which could impact net margins if not resolved favorably.
  
• The variability in gold and silver prices, along with exposure to volatile commodities like palladium and iron ore, could lead to fluctuations in revenue and pressure on net margins if prices trend unfavorably.
  
• Delays or challenges in the ramp-up of new mining projects like Tocantinzinho and Valentine Gold could hinder the expected increase in GEOs, affecting medium-term revenue growth and cash flow projections.
  
• Dependence on the continued ramp-up and execution of planned expansions or new operations, such as in Candelaria and Stillwater, introduces execution risk that could impact projected increases in earnings and shareholder returns.

Valuation

• The analysts have a consensus price target of CA$258.091 for Franco-Nevada based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$279.22, and the most bearish reporting a price target of just CA$229.23.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $858.0 million, and it would be trading on a PE ratio of 50.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of CA$236.24, the analyst price target of CA$258.09 is 8.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.