Franco Nevada Down 4.5%, But Off Day Lows as Credit Suisse cuts Rating, Target Price on Prosperity news
Credit Suisse downgraded Franco Nevada Corporation (FNV.TO) to Neutral from Outperform and also reduced its Target Price to US$37 from US$38. FNV is down 4.5%, but off a day low $33.26.
Reducing our rating to Neutral from Outperform on valuation and revising our target price: "We are reducing our target price by US$1.00 to US$37, based on a reduction to our DCF (from US$27.57 to US$27.07) resulting from the exclusion of Prosperity, partially offset by value additions at Tasiast and Detour Lake.
"We apply a blended Target P/NAV multiple of 1.35X (revised from 1.39X - less gold) applied to our DCF and add net cash of $4.03/sh (revised from $2.28/sh).
"We are downgrading our rating based on valuation, given that our new target price results in a 5% potential return to target price, which is below our 10% threshold for an Outperform rating for FNV. Our 2012 EPS was revised from $0.63 to $0.61 based on a revised production profile for Detour.
Prosperity project rejected: "On Nov. 2, 2010, the Federal Government announced Taseko's Prosperity gold-copper projectw ould not be granted permits and that the government agreed with the review panel's conclusions that the project would result in significant adverse environmental effects on several issues including fish habitat, current use of lands for traditional purposes by First Nations, and certain Aboriginal rights to the area.
Prosperity removes $3.00 from our Target price: "We calculate a NAV (of the Prosperity gold stream of $417M, or $625M of value for the project attributable to our share price using a 1.5X P/NAV multiple. Adding back the attributable cash (now not to be spent on the project) we arrive at $3.00/sh reduction to our target price for removal of Prosperity gold stream.
"Adding value for Detour and Tasiast offsets our Target price reduction by $2.00/sh. The recent increase to Credit Suisse's production profile for the Detour Lake project adds $66M of incremental NAV to FNV. Additionally, the inclusion of our revised outlook for the Tasiast mine, which reflects some of Kinross's production plan for the asset, adds $85M to our Tasiast NAV. Combined, these value additions add back $2.00 toour share price (at a 1.5X P/NAV multiple."
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