DCF Studio

    FNV.TO · TOR · Basic Materials

    Franco-Nevada Corporation

    Also onConsensus Drift

    Implied value per share

    CAD 118.07

    Market price

    CAD 373.80

    Implied upside

    -68.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.3982

    AdjustedReports in USD, trades in CAD. Modelled in USD, converted at the end.
    AdjustedCapital expenditure runs at 52.7% of revenue against depreciation of 20.3%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: CAD assumption - no free live source available for this market.

    Current EV/EBITDA of 44.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    CAD 118.07-68.4%
    Exit multiple
    CAD 284.79-23.8%
    Market price
    CAD 373.80

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m281m562mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 2.0bnUSD 2.3bnUSD 2.5bnUSD 2.8bnUSD 3.1bn+11.5%
    EBITUSD 1.3bnUSD 1.5bnUSD 1.6bnUSD 1.8bnUSD 2.0bn+11.5%
    NOPATUSD 1.0bnUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.6bn+11.5%
    Add depreciation & amortisationUSD 412.6mUSD 459.9mUSD 512.7mUSD 571.6mUSD 637.2m+11.5%
    Less capital expenditureUSD -1.1bnUSD -1.2bnUSD -1.3bnUSD -1.5bnUSD -1.7bn+11.5%
    Less increase in working capitalUSD -13.2mUSD -14.7mUSD -16.4mUSD -18.3mUSD -20.4m+11.5%
    Free cashflow to firmUSD 363.9mUSD 405.6mUSD 452.2mUSD 504.1mUSD 562.0m+11.5%
    Discount factor0.95940.88300.81280.74810.6886-
    Present valueUSD 349.1mUSD 358.2mUSD 367.5mUSD 377.1mUSD 387.0m+2.6%
    Present Value Of The ForecastUSD 1.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.30%CAD assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.972Reported 0.958, pulled toward 1.0 (Blume)
    Cost of equity8.65%Risk-free + beta x equity risk premium
    Cost of debt5.30%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 72.1bn100.0% of capital
    Total debtUSD 0.000.0% of capital, book value as a proxy
    Tax rate21.5%Effective, capped at statutory
    WACC8.65%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 84.45

    88% of EV

    Forecast FCFF, final year
    USD 562.0m
    Capex at depreciation, working capital in reinvestment
    USD 1.6bn
    Less reinvestment at g/ROIC (24.9% of NOPAT)
    USD -397.7m
    Capitalised
    USD 1.2bn
    ROIC (reported)
    10.0%
    Terminal value, undiscounted
    USD 20.0bn
    Terminal value, discounted
    USD 13.8bn
    Enterprise value
    USD 15.6bn
    Less net debt
    USD -670.9m
    Equity value
    USD 16.3bn

    Exit at 20.0x EBITDA

    Value per shareUSD 203.68

    95% of EV

    Terminal value, undiscounted
    USD 53.4bn
    Terminal value, discounted
    USD 36.8bn
    Enterprise value
    USD 38.6bn
    Less net debt
    USD -670.9m
    Equity value
    USD 39.3bn

    Spread between methods: 83%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.65%117.51122.50128.62136.33146.40
    7.65%96.7699.26102.18105.68109.95
    8.65%81.9183.1084.4585.9787.74
    9.65%70.7971.2571.7572.2772.84
    10.65%62.6662.9163.1563.4063.65

    Outlined: this model. Green text: above today's price of 267.34. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year11.5%42.5%+31.0pp
    Discount rate8.6%4.6%-4.1pp
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    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.