Tuesday, BofA Securities adjusted its stance on Franco-Nevada Corporation (NYSE:FNV) shares, downgrading the stock from Buy to Neutral and lowering the price target to $139 from $142. The revision followed a reassessment of the company's net asset value, leading to a 5% decrease in the estimated value.
The analyst at BofA Securities recalibrated the price to net asset value (P/NAV) valuation multiple for Franco-Nevada to 2.75 times, up from the previous 2.50 times. This change reflects the highest multiple the firm has applied within its North American Metals & Mining coverage. Despite the increased multiple, the reduction in the net asset value estimate necessitated a decrease in the price objective.
Franco-Nevada's new price target of $139 per share, equivalent to CAD $188, was set against the backdrop of its full valuation and a growth projection that now trails the peer average. This contrast in growth outlook was a determining factor in the downgrade decision.
The analyst's commentary highlighted the dual adjustments leading to the new rating and price target. While the valuation multiple increased, the 5% cut in the net asset value estimate had a more significant impact, resulting in a lower price objective for Franco-Nevada's shares.
Franco-Nevada, which is traded on the New York Stock Exchange, will continue to be monitored by investors as it adjusts to the new rating and navigates the market with its updated valuation and growth expectations.
In other recent news, Franco-Nevada Corporation reported its Q2 2024 financial results, showing an increase in revenue and operational cash flow, despite production declines at some mines. This growth was supported by record gold prices and the acquisition of new streams and royalties. The company also anticipates a boost in performance from new mines starting production in the latter half of 2024.
Franco-Nevada's Q2 results were negatively impacted by production declines at the Candelaria and Antapaccay mines. However, the company acquired a gold stream on SolGold's Alpala project and a royalty on Newmont's Yanacocha operations, which are expected to contribute positively to future performance. The company forecasts an effective tax rate of 19-20% and has $2.4 billion in available capital.
The company is actively pursuing opportunities in the non-gold space, including lithium, with potential transactions ranging from $50 million to $400 million. The third-quarter 2024 results will be released later this year. These recent developments indicate a focus on diversification and growth for Franco-Nevada Corporation.
InvestingPro Insights
Franco-Nevada Corporation's recent downgrade by BofA Securities aligns with some of the financial metrics and insights provided by InvestingPro. Despite the downgrade, InvestingPro Tips highlight that Franco-Nevada "has raised its dividend for 16 consecutive years" and "holds more cash than debt on its balance sheet," indicating financial stability. This could be reassuring for investors concerned about the company's valuation.
The company's impressive gross profit margin of 86.26% for the last twelve months as of Q2 2024 supports the InvestingPro Tip mentioning "impressive gross profit margins." This high profitability at the gross level suggests efficient operations, which could be a factor in the company's ability to maintain its dividend payments.
However, it is worth noting that Franco-Nevada is currently trading at a high Price / Book multiple of 4.09, which aligns with BofA's observation about the company's full valuation. This high multiple might justify the analyst's decision to downgrade the stock to Neutral.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Franco-Nevada, providing a deeper understanding of the company's financial health and market position.
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