The average gold price rose 23% in Q3, yet a company that makes its living from gold fell short last quarter—tonight, it takes the test again.
Franco-Nevada reports its Q3 results after the U.S. market closes tonight, with the conference call set for 8 a.m. Eastern tomorrow. The consensus is EPS of $1.77, up 23.8% year over year, and revenue of $568.4 million, up 16.6%.
The company doesn't mine. It makes money through royalties and metal streams: it funds mining companies to build mines in exchange for a share of revenue, or the right to buy gold at a discount. The average gold price in Q3 was about $4,305, up 23% year over year. In the first half, revenue reached $1.23 billion, up 67%, and operating cash flow hit $1 billion, up 39%. Its adjusted EBITDA margin was 91.2%—an impressive-looking set of numbers.
But last quarter, it missed on both counts: EPS was $1.81, below the expected $1.95, while revenue was $580.9 million, also below the $616.7 million forecast. Rising gold prices don't guarantee profits for companies that make their living from gold. Deliveries from a single mine or project delays can wipe out the benefit of higher prices.
Tonight, watch two things: how far Cobre Panamá had recovered by the end of September, and where the company will put the billions in cash it has on hand. Gold is currently around $4,050, down about 20% from its year-to-date peak. After October CPI came in hotter than expected, the odds of a rate hike in December are close to 99%, so gold's next move still depends on interest rates. Analysts are unanimous in their Buy rating, with an average price target of about $264 versus the current price of around $256.
This whale's take: The royalty model's moat brings in real, hard-cash rental income, but earnings reports test execution, not the business model. The Q2 miss already proved that once. If it misses again, the idea of “easy money” will need to be discounted. If it beats expectations and dares to raise its full-year guidance, that would be the real sign that the gold-price windfall is being captured. $FNV
Franco-Nevada reports its Q3 results after the U.S. market closes tonight, with the conference call set for 8 a.m. Eastern tomorrow. The consensus is EPS of $1.77, up 23.8% year over year, and revenue of $568.4 million, up 16.6%.
The company doesn't mine. It makes money through royalties and metal streams: it funds mining companies to build mines in exchange for a share of revenue, or the right to buy gold at a discount. The average gold price in Q3 was about $4,305, up 23% year over year. In the first half, revenue reached $1.23 billion, up 67%, and operating cash flow hit $1 billion, up 39%. Its adjusted EBITDA margin was 91.2%—an impressive-looking set of numbers.
But last quarter, it missed on both counts: EPS was $1.81, below the expected $1.95, while revenue was $580.9 million, also below the $616.7 million forecast. Rising gold prices don't guarantee profits for companies that make their living from gold. Deliveries from a single mine or project delays can wipe out the benefit of higher prices.
Tonight, watch two things: how far Cobre Panamá had recovered by the end of September, and where the company will put the billions in cash it has on hand. Gold is currently around $4,050, down about 20% from its year-to-date peak. After October CPI came in hotter than expected, the odds of a rate hike in December are close to 99%, so gold's next move still depends on interest rates. Analysts are unanimous in their Buy rating, with an average price target of about $264 versus the current price of around $256.
This whale's take: The royalty model's moat brings in real, hard-cash rental income, but earnings reports test execution, not the business model. The Q2 miss already proved that once. If it misses again, the idea of “easy money” will need to be discounted. If it beats expectations and dares to raise its full-year guidance, that would be the real sign that the gold-price windfall is being captured. $FNV
