Franco-Nevada stock has bounced by more than 27% from its recent lows. The valuations appear a little stretched with a high P/E in excess of 60 and price to book ratio of 2. The price to sales ratio is nearly 15. This is at a time when many of the gold companies are trading at a discount to the book value. The development stage companies like Pershing Gold Corporation (PGLC) (likely to start production in 2014) are available at even cheaper valuations. In the earnings released for Q1'13 a short while ago, the management maintained the guidance for 2013 and expects a total of 215,000 to 235,000 Gold Equivalent Ounces from its mineral assets, and $55 to $65.0 million in revenue from its oil & gas assets. However, high valuations are not supported by the earnings for Q1'13. Though the company showed a 3.6% growth in revenues to $108.8 million ($105 million in Q1'12), the net income declined by around 25% to $35.4 million (from $46.8 million in Q1'12). QoQ, the revenues dropped by 4.6% from $114.1 million in Q4'12. In Q4'12, the company had reported a net loss of $33.1 million (after unusual expense of $82.70 million). In addition, the loss in “other comprehensive income / (loss)” in Q1'13 was $29.7 million which was mainly due to currency translation adjustments. This loss may be transferred to profit and loss account later (as per accounting standards). In Q1'12, there was a profit of $24.1 million under this head. Thus, the results showed that margins have contracted and the valuations are becoming a little high. 85% of the revenue was from precious metals (mainly gold – 71%) and the oil and gas assets contributing most of the balance. 33% of the revenues came from Canada, 24% from US, 21% from Mexico and 4% from Australia. The company improved its cash position from $779.9 million as on December 31, 2012 to $825.8 million as on March 31, 2013.
