Canadian Mining Stocks

Osisko Gold Royalties Ltd Valuation – Initial Coverage $TSE:OR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Osisko Gold Royalties Ltd (TSE:OR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Osisko Gold Royalties Ltd (Osisko) is a Canada-based company engaged in the business of acquiring and managing precious metal and other interests in Canada and across the world. The Company’s assets include the Canadian Malartic mine, located in Malartic, Quebec and Eleonore mine, located in the James Bay area in Quebec. It invests in equities of exploration and royalty companies, as well as holds interest in exploration and evaluation projects in over four prolific gold camps: the Abitibi Gold Belt, the James Bay area, the Cariboo mining district and the Guerrero Gold Belt in Mexico. It holds interest in Vezza gold property, which is located over 20 kilometers from Matagami, Quebec, and Cariboo Gold Project, which covers an area of approximately 1,160 square kilometers. It owns a portfolio of royalties, options on royalties and exclusive rights to participate in future royalty/stream financings on various projects, in Canada and the United States.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-OR – September 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,706,063,686 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 12.75 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 3233.33% Pass
6. Moderate PEmg Ratio PEmg < 20 3.90 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.51 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 12.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.14 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.42
MG Growth Estimate 15.00%
MG Value $170.30
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $64.14
MG Value based on 0% Growth $37.60
Market Implied Growth Rate -2.30%
Current Price $17.24
% of Intrinsic Value 10.12%

Osisko gold royalties Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-3.47 in 2013 to an estimated $4.42 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.3% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Osisko gold royalties Ltd revealed the company was trading above its Graham Number of $8.47.  The company pays a dividend of $0.16 per share, for a yield of 0.9%  Its PEmg (price over earnings per share – ModernGraham) was 3.9, which was below the industry average of 146.28, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.27.

Osisko gold royalties Ltd performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.27
Graham Number $8.47
PEmg 3.90
Current Ratio 12.75
PB Ratio 1.51
Current Dividend $0.16
Dividend Yield 0.93%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $358,002,000
Total Current Liabilities $28,075,000
Long-Term Debt $46,236,000
Total Assets $1,438,511,000
Intangible Assets $654,406,000
Total Liabilities $221,902,000
Shares Outstanding (Diluted Average) 106,771,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.28
Dec2016 $0.40
Dec2015 $0.32
Dec2014 $36.40
Dec2013 -$10.41

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.42
Dec2016 $6.11
Dec2015 $7.73
Dec2014 $9.36
Dec2013 -$3.47

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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