--Analyst Action: Credit Suisse Keeps Neutral Rating, US$38 Target on Franco Nevada Corporation
Credit Suisse kept a Neutral rating and US$38 target price on Franco Nevada Corporation (FNV.TO) after its Q1/11 came in largely in-line with expectations.
Q1/11 adj. EPS of $0.18 above CS est of $0.19 and consensus at $0.18: "After market close on May 12th, FNV reported Q1/11 adj EPS of $0.18 slightly below CS est. of $0.19 but in-line with consensus at $0.18 (range $0.15 - $0.22). The variance is largely due to lower than expected revenues."
Q1 operating highlights - Gold beat, O&G misses, PGMs beat: "FNV reported total revenue of $73.1M above CS estimates of $65.2M. Gold royalties of $52.7M beat CS estimates of $48.5M, largely the result of an outperformance at Palmarejo (+$7M). Oil & gas royalties came in at $8.8M missing CS estimates of $10.4M, due to weak royalties at Weyburn, Edson and Midale. PGM royalties came in at $9.8M above CS est. of $4.3M as a result of significant strength from Stillwater. Base metal royalties were a slight miss at $1.7M."
GWL assets make first contribution to FNV's bottom line: "Collectively the GWL assets contributed $8.7M of revenue in Q1/11 above CS estimates of $4.6M. The beat is largely the result of higher than expected revenue from Levack operations and Ezulwini. Going forward the Levack operations are expected to be relatively steady state while MWS is expected to benefit from the addition of a third module and Ezulwini is anticipated to make the 2011 minimum payment."
2011 Guidance maintained: "FNV reaffirmed its 2011 revenue guidance with expected total revenues of $325-$350M."
Investment Thesis: "We expect gold prices to remain strong, with exploration updates and project advancement to drive the story. We believe cost inflation will continue to rise across the mining industry, which will spark renewed interest in FNV's business model which has minimal exposure to rising costs. FNV will also likely benefit as a leveraged alternative to the ETF. However, we believe the stock is currently fairly valued."
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