Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Viking on March 13, 2018, 04:24:46 PM

Title: ENB - Enbridge
Post by: Viking on March 13, 2018, 04:24:46 PM
Anyone have thoughts on Enbridge? 5 years ago the stock was trading at CAN $ 47. Early in 2017 the stock traded as high as CAN $57. Today the stock is trading at CAN $42.65. The dividend is $2.68/share = yield of 6.55%. Management is guiding they will grow the dividend by 10% each year moving forward.

What is the issue? Their made a very large acquisition last year and it has not worked out as planned yet. Management has stated they will be selling off min $3 billion of none core assets.

Long term interest rates moving higher also is not good for utility stocks.

It looks to me like the company has some issues they need to clean up. However, they should be able to do so over the next 12-18 months. Stock looks pretty cheap today at CAN $42. Looks like a good candidate to hold in place of a bond.

Thoughts?

Summary article: https://www.fool.ca/2018/02/05/is-enbridge-inc-s-dividend-safe/
Title: Re: Enbridge - ENB
Post by: Spekulatius on March 13, 2018, 04:57:46 PM
I have been buying quite a bit of it recently. Thatís my thought. I also own SEP in my taxable account and a bit of EEQ. They are all cheap, IMO.
Title: Re: Enbridge - ENB
Post by: rb on March 13, 2018, 07:40:38 PM
I haven't done a deep dive so I can't say for sure but at current levels it still doesn't look cheap. It's 1.25 book and their ROE wasn't very impressive. A lot of the assets are regulated so they can't charge through the skies for them. KMI is about 1.1.

I don't think the dividend is a good measure. They've been issuing stock to maintain the dividend. That's neither a good strategy nor a good position to be in.

All that being said I like the assets they have. I just think think they're bad (mainstream?) capital allocators. You could probably make ok money from here if you assume that they won't do more stupid shit. I'm just not convinced it's worth it for me here. More research needed for sure.

Title: Re: Enbridge - ENB
Post by: gokou3 on March 13, 2018, 10:20:19 PM
I haven't done a deep dive so I can't say for sure but at current levels it still doesn't look cheap. It's 1.25 book and their ROE wasn't very impressive. A lot of the assets are regulated so they can't charge through the skies for them. KMI is about 1.1.

I don't think the dividend is a good measure. They've been issuing stock to maintain the dividend. That's neither a good strategy nor a good position to be in.

All that being said I like the assets they have. I just think think they're bad (mainstream?) capital allocators. You could probably make ok money from here if you assume that they won't do more stupid shit. I'm just not convinced it's worth it for me here. More research needed for sure.

I am not so sure if P/B and ROE are the important metrics to look at given they have long-life assets acquired from long ago.  That said, it trades at 12x EV/2018e EBITDA which isn't cheap either.  I have long ENF which is at a more reasonable 10.3 EV/2018e EBITDA.  Management expects 10% annual dividend growth for each of the next 2 years while maintaining a payout ratio ~80%.


Title: Re: Enbridge - ENB
Post by: rb on March 13, 2018, 10:30:05 PM
Enbridge is an asset heavy company. If P/B is not relevant for whom is it relevant?
Title: Re: Enbridge - ENB
Post by: LC on March 13, 2018, 10:42:47 PM
Enbridge is an asset heavy company. If P/B is not relevant for whom is it relevant?
Financials perhaps?

I was looking at ENB a month or so ago but they seem poorly managed and also the share issuance as you mentioned both turned me off.
Title: Re: Enbridge - ENB
Post by: Spekulatius on March 14, 2018, 03:56:33 AM
They issued some stock to pay for ~12B in Capex this year. Most of the equity raises came from sponsored vehicles. THey have an enormous Capex program that this year will result in ~2B in incremental EBITDA, which will make the EV/EBITDA ratio look much better. The cash flows from these expansion projects will flow for decades. This is like an utility but with better regulation (FERC) and better growth prospects.

Their plan is to raise the dividend by 10% for a couple of years (which is possible based on current projects completed or in the works) from a almost 7% starting yield.
Title: Re: Enbridge - ENB
Post by: Uccmal on March 14, 2018, 07:22:18 AM
I have a large position and took the low price opportunity to buy more and reduce my ACB by quite alot. 

The issues:

1) Rising interest rates.  This is an unknown quantity.  There are several moving parts here.  Right now the market is punishing utilities in general due perception that interest rates are going to keep going up.  We dont know what is going to happen on this front.  I dont believe that interest rates are going to get very much higher before we see a pause or even a retrace due to a recession.  If you believe interest rates are going to go up faster than utlities can raise their rates then its probably a mediocre deal at these prices.

2) Stock dilution.  This was done to finance the Spectra takeover, and several other projects including the Line 3 replacement.  Spectra came with a large backlog of projects.  The equity issuance was not done to finance the dividend.  However, since the money comes from the same pile it could look that way. 

3) Line 3 replacement.  This is under construction and will double the thru put to 700000 bpd.  Right now Minnesota is the hold out.  They are expected to decide on the status of the application in June.  Until is is affirmed the stock will trade lower.  Once it is given the go ahead the pipe will be put in the ground quickly.  The Canadian section and the Wisconsin sections are under construction.  I dont see Minnesota turning down the pipe if it meets their Env. standards.  It is more or less following the route of the old pipe which is still moving barrels.  Shuttering the old pipe and getting the fees for the new larger pipe has both a positive environmental and economic impact. 

4) The dividend payout ratio is supposedly -70% based on the Cash Flow from operations.  It exceeds 100% by quite a bit when looking at EPS.  This is right now without the additional projects online.  Enbridge has been taking steps to reduce Spectras overpriced debt, amd rationalize Spectra. 

Upside:
1) Largest pipeline provider in North America by a substantial margin before the added projects.  This gives them some pricing power.  It is readily apparent that having pipe is very different these days from trying to build pipe from scratch.  These guys have decades of dealing with governments, land claims proponents, and the public.  Someone else trying to build a competitive pipe from scratch is at a supreme disadvantage.

2) Size and cash flow allows them access to cheaper capital than smaller players. 

3) A large amount of projects will come on line over the next 3 to 4 years.  They are even building a gas pipe from Texas into Mexico.  These projects should support cash flow and bring the payout ratio lower. 

The finances are a dogs breakfast with all the subs and sponsored vehicles.  That said they have the pipe, obviously have the customers (more than they can handle right now), and the scale. 



Title: Re: Enbridge - ENB
Post by: KCLarkin on March 14, 2018, 08:24:49 AM
Enbridge is an asset heavy company. If P/B is not relevant for whom is it relevant?

This is actually a very interesting case study. The book value is likely understated, since the replacement cost would be much higher than the cost on the books. But if the book value is understated, that means ROE is overstated. So these should net each other out. At first glance, ROE seems to be ~10%. Now, the key variable is the cost of equity. Given the utility-like nature of pipelines, they should have a very low cost of equity. Maybe 6-8%. Depending on your growth assumptions, you could easily justify a P/B of >2 for Enbridge.

Now, ROE and P/B are probably temporarily distorted due to the capital raise and merger. And subs and sponsored vehicles add complexity. So, I would be cautious using P/B for the valuation. But the median historical P/B for Enbridge (according to Gurufocus) is 3.1. So it certainly looks cheap compared to historical and theoretical valuations. Whether that cheapness is justified, I don't know. The fiasco at KMI et al probably raised cost of equity for all pipelines, so historic P/B may not be a reliable benchmark going forward.

--
What is very clear, is that the ROE is not high enough to support both the dividend and the growth of the company. So it will be a serial share issuer. But this might be value creating, since the higher dividend lowers the cost of equity (since certain investors have a preference for dividends).

--
Anyway, this stock could certainly provide 15%+ returns over the next few years. But I'm reluctant to purchase since I don't why it continues to sell-off.

Title: Re: Enbridge - ENB
Post by: JRM on March 14, 2018, 09:20:17 AM
Enbridge is an asset heavy company. If P/B is not relevant for whom is it relevant?

This is like saying price to book matters for Burlington Northern.  Much of the pipe in the ground was fully depreciated years ago.  The current book value also includes goodwill and intangibles from buying out smaller pipeline companies above book value.  Long term distributable cash flow matters.  Long term contracts, hedged positions, and exposure to natural gas/oil/other liquids matters.

I think Kinder Morgan offers similar downside with much more potential upside, for whatever its worth.
Title: Re: Enbridge - ENB
Post by: rb on March 14, 2018, 12:37:51 PM
Enbridge is an asset heavy company. If P/B is not relevant for whom is it relevant?

This is like saying price to book matters for Burlington Northern.  Much of the pipe in the ground was fully depreciated years ago.  The current book value also includes goodwill and intangibles from buying out smaller pipeline companies above book value.  Long term distributable cash flow matters.  Long term contracts, hedged positions, and exposure to natural gas/oil/other liquids matters.

I think Kinder Morgan offers similar downside with much more potential upside, for whatever its worth.
If that were true, fully depreciated pipe still earning, etc that means that their ROE should be large. That hasn't been the case with ENB. To use your railway example,  if you look at UNP it's ROE is much larger.
Title: Re: Enbridge - ENB
Post by: KCLarkin on March 14, 2018, 12:46:04 PM
If that were true, fully depreciated pipe still earning, etc that means that their ROE should be large. That hasn't been the case with ENB. To use your railway example,  if you look at UNP it's ROE is much larger.

Worth noting that ENB is a serial issuer of shares and UNP buys back shares. So that would distort both ROE and Book Value.
Title: Re: Enbridge - ENB
Post by: JRM on March 14, 2018, 03:53:17 PM
I guess my point was that book value is understated in some cases and overstated in other cases.  These pipelines can easily last 50+ years with proper maintenance.  Meanwhile, mergers and acquisitions overstate the value of assets acquired.
Title: Re: Enbridge - ENB
Post by: rb on March 14, 2018, 04:06:28 PM
M&A should not overstate the value of the assets. Goodwill exists because those purchased assets are supposedly worth more than book. Goodwill is very much an asset. After all, shareholders paid for it. Even if the company overpaid it doesn't change the fact that it paid. Think of it this way... It doesn't matter what coupon a bond pays. What matters is what yield you get.
Title: Re: Enbridge - ENB
Post by: JRM on March 14, 2018, 05:33:42 PM
M&A should not overstate the value of the assets. Goodwill exists because those purchased assets are supposedly worth more than book. Goodwill is very much an asset. After all, shareholders paid for it. Even if the company overpaid it doesn't change the fact that it paid. Think of it this way... It doesn't matter what coupon a bond pays. What matters is what yield you get.

I don't disagree with you in general terms, but accounting for a utility such as a pipeline company is different than for something like an E&P company.  An E&P continually calculates book value based on estimated NPV of proven and probable reserves.  The asset value for a new pipeline is the total cost of installation less depreciation. In many cases the assets may be fully depreciated while the asset is still in production for many years. When the pipelines are sold they are valued based on DCF, which supports my original point.

Back to the original point, I think valuation should be based on DCF rather than book value.
Title: Re: Enbridge - ENB
Post by: KCLarkin on March 14, 2018, 05:34:27 PM
M&A should not overstate the value of the assets. Goodwill exists because those purchased assets are supposedly worth more than book. Goodwill is very much an asset. After all, shareholders paid for it. Even if the company overpaid it doesn't change the fact that it paid. Think of it this way... It doesn't matter what coupon a bond pays. What matters is what yield you get.

The problem is that it makes comparability between firms impossible.
Title: Re: Enbridge - ENB
Post by: Gilp on March 14, 2018, 10:47:53 PM
Interesting idea.
Did you compare to Kinder Morgan (KMI)? After cutting down the dividend the stock went down, and they also have more free capital to play with.
It can be better opportunity.
Title: Re: Enbridge - ENB
Post by: alpha on March 15, 2018, 09:28:00 AM

Market didn't like today's tax news regarding ENB and other pipeline operators:

Quote
Pipeline owners slide after FERC reverses course on tax allowance cost recovery Shares of a number of companies that own oil and gas pipelines, including Enbridge (ENB), TransCanada (TRP), Williams (WMB), Energy Transfer Partners (ETP), Plains All American (PAA) and Kinder Morgan (KMI), are sliding following an announcement from an energy industry regulator. Earlier, the Federal Energy Regulatory Commission, or FERC, responded to a federal court remand by stating it no longer will allow master limited partnership, or MLP, interstate natural gas and oil pipelines to recover an income tax allowance in cost of service rates. FERC said its revised policy statement explains that, while all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the application of the United Airlines court case to non-MLP partnerships will be addressed as those issues arise in subsequent proceedings.
Title: Re: Enbridge - ENB
Post by: JRM on March 15, 2018, 02:45:43 PM
I guess it took Mr. Market a little bit of time to realize that Kinder Morgan isn't an MLP anymore.
Title: Re: Enbridge - ENB
Post by: Spekulatius on March 15, 2018, 03:41:46 PM
I guess it took Mr. Market a little bit of time to realize that Kinder Morgan isn't an MLP anymore.

But KMI still competes with MLPs. How can they charge more for regulated assets just because they have to pay tax and other entities donít. This does not make sense.
Title: Re: Enbridge - ENB
Post by: JRM on March 15, 2018, 03:57:11 PM
I guess it took Mr. Market a little bit of time to realize that Kinder Morgan isn't an MLP anymore.

But KMI still competes with MLPs. How can they charge more for regulated assets just because they have to pay tax and other entities donít. This does not make sense.

The advantage is how they are allowed to spend their DCF.  They are able to more optimally allocate capital compared to an MLP like Enbridge. 
Title: Re: Enbridge - ENB
Post by: Spekulatius on March 15, 2018, 04:05:25 PM
I guess it took Mr. Market a little bit of time to realize that Kinder Morgan isn't an MLP anymore.

But KMI still competes with MLPs. How can they charge more for regulated assets just because they have to pay tax and other entities donít. This does not make sense.

The advantage is how they are allowed to spend their DCF.  They are able to more optimally allocate capital compared to an MLP like Enbridge.

ENB is not an MLP either - they own and sponsor MLPs. They can and do allocate their capital either in an MLP umbrella or with the C-Corp mothership.

KMI and other C-Corp directly compete with MLPs for new projects. My guess is that this decision to adjust pricing for new projects based on taxes (which are often theoretical and non- cash anyways) has so many unintended and negative consequences, they it will not stand, or that the incorporation will change. Theoretically and MLP example could run a C-Corp sub to new projects to house, so they can charge more, since taxes are paid for by the customer. If this makes any sense, I will rest may case.
Title: Re: Enbridge - ENB
Post by: Uccmal on March 16, 2018, 06:39:47 AM
Enbridge Statement:

Enbridge Inc. does not expect a material consolidated financial impact as a result of FERC Revised Policy Statements



https://www.enbridge.com/media-center/news/details?id=123500
Title: Re: Enbridge - ENB
Post by: Viking on March 16, 2018, 03:00:00 PM
Very interesting to see the reaction in ENB stock today to the press release. The stock started higher and then sold off later in the day to end roughly flat to yesterdayís closing price.

Does Mr Market not believe management? (That the recent FERC ruling will not be material)
Or is the issue rising interest rates? The utility sector is under pressure and this may continue if rates continue higher. ENB also carries a very large debt load.
Title: Re: Enbridge - ENB
Post by: gokou3 on March 16, 2018, 03:19:16 PM
Very interesting to see the reaction in ENB stock today to the press release. The stock started higher and then sold off later in the day to end roughly flat to yesterdayís closing price.

Does Mr Market not believe management? (That the recent FERC ruling will not be material)
Or is the issue rising interest rates? The utility sector is under pressure and this may continue if rates continue higher. ENB also carries a very large debt load.
I think ENB is helped by this news:

Minnesota regulators OK environmental review for Enbridge pipeline
https://seekingalpha.com/news/3339981-minnesota-regulators-ok-environmental-review-enbridge-pipeline


Not an approval per se, but it gives a more certain timeline on the final approval decision.  Note also ENF in which the Line 3 business is housed rose even more.
Title: Re: Enbridge - ENB
Post by: Uccmal on March 17, 2018, 05:52:13 AM
Very interesting to see the reaction in ENB stock today to the press release. The stock started higher and then sold off later in the day to end roughly flat to yesterdayís closing price.

Does Mr Market not believe management? (That the recent FERC ruling will not be material)
Or is the issue rising interest rates? The utility sector is under pressure and this may continue if rates continue higher. ENB also carries a very large debt load.

As a shareholder in Enbridge my major concern is the dividend being maintained and increased at the promised rate of 10%.  Same applies to ENF which I have recently bought. 

Therefore I want to see the following:

1) The debt come down.  There is no need to rush.  I would like to see the floating rate debt reduced and the nearest term maturities pushed out further.  The debt is manageable today but may not be manageable in a significantly higher rate environment.

2) All permitting and construction started on Line 3.  The faster they get shovels in the ground the less likely it is that they can be sued out of operation. 

3) A continuation of their buildout program without incurring too much additional debt (most of these projects are within the Spectra portfolio). 

A comment on higher interest rates.  We are all assuming interest rates will go higher and higher to some mythical number, perhaps 4 to 6% on ten year treasuries.  Personally, I think these worries are overblown.  I dont think rates can go much higher without tipping everything into a recession.  I think worry about rates is the primary reason why the utilities, in general, are selling off.  There is also a lag time.  Rates could go way up and come all the way back down before Enbridge and others use up their interest rate hedges and have to issue more debt. 

I think my concerns are the same concerns that the 'market' has about the stock.  The interest rate concern is affecting the entire utility sector. 

As an aside.  1/3 of Enbridge investors are enrolled in the DRIP.  The actual divdends payed out are 3.0 B. not 4.5 B which is what is used to calculate the payout ratio.  i.e. the cash payout ratio is lower than the accounting payout ratio. 

If we can stand to wait for the debt to be reduced and Line 3 to be permitted and begin construction in Minnesota then the stock should reward us.  In the meantime a 6% return on my purchase price, or 8.3 %  in the case of ENF is bearable.

Title: Re: ENB - Enbridge
Post by: Spekulatius on March 17, 2018, 06:03:22 AM
The EBITDA/EV ratio is going to come down (and has already come down) when all these assets that they have been building start to flow product and cash.  It is pretty much a given that their debt ratios will improve. Most of their fees are index to inflation as well. There will be some lag, but I think they are well covered when inflation (and interest rates) rise. Same with utilities.

I also think they will fold back EEP into ENB with an exchange in units for stock. EEP after the last tax ruling from the FERC cannot play their role as a funding vehicle any more and folding it back in a C-Corp would be directly acreditive. This would also serve the simplification narrative.
Title: Re: ENB - Enbridge
Post by: Ghost on April 24, 2018, 08:54:12 AM
https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-enbridges-proposed-line-3-pipeline-route-through-minnesota-rejected/
Title: Re: ENB - Enbridge
Post by: Uccmal on April 24, 2018, 02:59:12 PM
https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-enbridges-proposed-line-3-pipeline-route-through-minnesota-rejected/

A bit misleading.  The alternate route was rejected.  The judge favoured the route that Line 3 presently goes through.  This may present some obstacles in terms of downtime but these guys have been building pipe for generations.  I am sure they will find a way to minimize downtime.  This sort of solidifies the final acceptance from Minnesota.  The Minnesota Public Utilities Commission will approve one route or other in June and construction will begin.  It will require Enbridge to negotiate a payoff to two native groups for the timespan beyond 2029. 
Title: Re: ENB - Enbridge
Post by: Ghost on June 29, 2018, 06:05:16 AM
http://www.cbc.ca/news/business/enbridge-minnesota-line-3-1.4726894
Title: Re: ENB - Enbridge
Post by: Uccmal on June 30, 2018, 09:44:01 AM
http://www.cbc.ca/news/business/enbridge-minnesota-line-3-1.4726894

Yes, Huge gains this week.  Sold a bit of my position off.  It was far and away my largest holding by repeatedly buying on the dips.  Slept better last night. 
Title: Re: ENB - Enbridge
Post by: sarganaga on June 30, 2018, 06:20:38 PM
Sold all of mine Friday.
Title: Re: ENB - Enbridge
Post by: Spekulatius on July 01, 2018, 05:18:53 AM
Owning ENB has been a bit trying recently, but I never lost sleep owning it and it is one of my largest positions for me.
Title: Re: ENB - Enbridge
Post by: Ghost on July 05, 2018, 07:47:33 AM

Enbridge to sell natural gas business to Brookfield for $4.3B

http://www.cbc.ca/news/canada/calgary/enbridge-brookfield-1.4733055

Interesting move.
Title: Re: ENB - Enbridge
Post by: Spekulatius on July 05, 2018, 10:24:42 AM

Enbridge to sell natural gas business to Brookfield for $4.3B

http://www.cbc.ca/news/canada/calgary/enbridge-brookfield-1.4733055

Interesting move.

ENB is concentrating on long haul NG and crude pipes as well as utility ops. Basically, they are getting rid of assets with volatile cash flow or where they are sub scale.
I think the proceeds from this sale basically pay for the remainder of line 3 capex.

I like the move, and would like it even more, if I knew they got a decent price for their sale. One thing is clear- the short thesis that ENB is leveraged too high , leading to rating downgrades is quickly becoming unhinged.
Title: Re: ENB - Enbridge
Post by: benhacker on July 05, 2018, 10:43:47 AM
Spek, do you see any risk in EEP/EEQ deal break and/or ratio re-negotiation (in a downward direction for EEP/EEQ holders)?

I agree with you generally that ENB is attractive, and stepping in via EEP/EEQ seems like the best way to own.
Title: Re: ENB - Enbridge
Post by: Spekulatius on July 05, 2018, 12:25:14 PM
Spek, do you see any risk in EEP/EEQ deal break and/or ratio re-negotiation (in a downward direction for EEP/EEQ holders)?

I agree with you generally that ENB is attractive, and stepping in via EEP/EEQ seems like the best way to own.

I think ENB is not very likely to break the deal. I think there is some likelihood that the exchange ratio gets sweetened, in particular for EEQ.
Title: Re: ENB - Enbridge
Post by: benhacker on July 05, 2018, 08:56:13 PM
Thanks Spek, my view is the same.
Title: Re: ENB - Enbridge
Post by: Spekulatius on July 06, 2018, 06:37:42 AM
I swapped some ENB into EEQ yesterday as the price ratio seems favorable. I think EEQ is most likely to receive a bump in exchange rates because EEQ has the same economic rights than EEP, yet received a lower exchange rate, due to the quote being lower than EEP at the time the deal was announced. From a fair value principle, this does not make sense.
Title: Re: ENB - Enbridge
Post by: ValueMaven on September 09, 2018, 06:51:16 AM
Does ENB issue a K1?  Can anyone explain this to me in simplistic terms? 
Title: Re: ENB - Enbridge
Post by: Spekulatius on September 09, 2018, 07:00:52 AM
Does ENB issue a K1?  Can anyone explain this to me in simplistic terms?

ENB is a C-Corp and does not issue a K-1. Neither does EEQ. EEP and SEP are MLPs and do issue K-1’s. Tax wise, ENB is treated like any other Canadian stock. For US shareholders, there is a 15% withholding tax in a taxable account, but nothing in an IRA account. That’s why I like holding it in IRA’s.
Title: Re: ENB - Enbridge
Post by: ValueMaven on September 09, 2018, 08:20:12 AM
Very interesting.  Thank you! 
Title: Re: ENB - Enbridge
Post by: saltybit on September 26, 2018, 10:24:54 AM
https://www.ctvnews.ca/business/environmentalists-ask-u-s-regulators-to-reconsider-enbridge-pipeline-project-1.4109746
Title: Re: ENB - Enbridge
Post by: Spekulatius on September 26, 2018, 11:26:27 AM
I also think that ENB is very cheap here , with a 6% dividend, growing by 10% and a derisked balance sheet ( due to asset sales).
Title: Re: ENB - Enbridge
Post by: alpha on October 09, 2018, 08:45:01 PM

Enbridge gas pipeline exploded in BC:

https://www.ctvnews.ca/canada/pipeline-explodes-near-prince-george-b-c-rcmp-1.4127634
Title: Re: ENB - Enbridge
Post by: LC on October 09, 2018, 10:16:37 PM
I also think that ENB is very cheap here , with a 6% dividend, growing by 10% and a derisked balance sheet ( due to asset sales).
Thanks for your comments on this one. Has been on my watch list for a while but had nothing liquid, that is changing. Cheers.
Title: Re: ENB - Enbridge
Post by: Uccmal on October 10, 2018, 05:18:23 AM
I also think that ENB is very cheap here , with a 6% dividend, growing by 10% and a derisked balance sheet ( due to asset sales).
Thanks for your comments on this one. Has been on my watch list for a while but had nothing liquid, that is changing. Cheers.

Still my largest holding (If I count the Brookfield holdings as a group then ENB is #2).  I have seen a couple of writeups on seeking alpha that try to get at the proforma earnings after the consolidation.  As far as I can tell they will likely be able to meet their payout and buildout obligations out of cash flow for some time.  I cant think of a safer moat in the present economy than an existing pipeline system in North America. 
Title: Re: ENB - Enbridge
Post by: frommi on October 10, 2018, 06:22:36 AM
I like KMI a lot more because the leverage is so much lower. When you factor in minorities and preferred shares for ENB it has leverage of 6.4 x EBITDA and the stock trades at 12xEV/EBITDA.
KMI trades at 10.4xEV/EBITDA with a leverage of 4.9 x EBITDA (2019: 9.7 EV/EBITDA, 4.6xEBITDA). But i don`t have a clue how much ENB will make in EBITDA next year, it looks like there comes a lot of growth online next year. Has anyone EBITDA estimates for 2019?
Title: Re: ENB - Enbridge
Post by: Uccmal on October 11, 2018, 06:44:13 AM
I like KMI a lot more because the leverage is so much lower. When you factor in minorities and preferred shares for ENB it has leverage of 6.4 x EBITDA and the stock trades at 12xEV/EBITDA.
KMI trades at 10.4xEV/EBITDA with a leverage of 4.9 x EBITDA (2019: 9.7 EV/EBITDA, 4.6xEBITDA). But i don`t have a clue how much ENB will make in EBITDA next year, it looks like there comes a lot of growth online next year. Has anyone EBITDA estimates for 2019?

To your last line.  I generally dont attempt that sort of thing.  Enbridge bit off alot when they bought Spectra.  The high leverage and possible interest rate increases is leaning heavy on the stock.

I had Enbridge as a holding for quite a while but only made it a really big holding when the stock went below 40 CDN.  My buy in is around 43 average - CDN. 

Here is what I see:
1) A huge company with a lock on big parts of the movement of NA Energy.  It seems that building pipe is getting harder, not easier.  And there is really no other option.  Try working out how many railcars you need to make much difference to transport volumes.  The same would apply to KMI of course. 
2) Pays a dividend north of 6% right now and has promised to increase it by 10% per year for the next two years.  Now they haven't raised it yet and I have seen companies reverse course so....
3) Is buying in its subs.  By doing this they can right size the payouts from the MLPs leaving more at the parentco to pay to shareholders via debt reduction, continued dividend increase and further pipe building. 
4) Have a large backlog of permitted pipe projects from the acqusition of Spectra. 

The bogeyman seems to be interest rates and debt load.  I think this is a bit of an overreaction.  Enbridge was issuing extreme long term bonds right up until now at some pretty low rates.  Then there is the dividend payout versus interest rates.  The assumption is that rates will continue to be lifted.  This may be true but at the first sign of a recession they will come right back down. 

So, in short.  Who knows?  Meanwhile I get paid alot to wait.
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 11, 2018, 03:55:36 PM
I like KMI a lot more because the leverage is so much lower. When you factor in minorities and preferred shares for ENB it has leverage of 6.4 x EBITDA and the stock trades at 12xEV/EBITDA.
KMI trades at 10.4xEV/EBITDA with a leverage of 4.9 x EBITDA (2019: 9.7 EV/EBITDA, 4.6xEBITDA). But i don`t have a clue how much ENB will make in EBITDA next year, it looks like there comes a lot of growth online next year. Has anyone EBITDA estimates for 2019?

I think your numbers are a bit off. I do not believe that ENB leverage is 6.4x EBITDA. n their investor presentation is is noted as being 5x, which does not include the preferred , which I think are roughly $7B CAD, so they would make around 5.6x all inclusive. Also note they ENB recently sold assets for 7B CAD. I think the picture gets clearer once the assets sales and the retructuring of the MLP subs is complete. Right now, at current prices  ENB DCF is around 4.35 CAD/ share, which translates into a 10%+ cash yield. ENB is also on track to increase  their DCF by 20% YoY.

KMI has a bit lower leverage, but I think their assets overall are of somewhat lower quality. For example about 15% of KMI cash flows are from the CO2 segment, which is an E&P in disguise and really deserves a 5x multiple only.

I own both KMI and ENB, but own more ENB. At current valuations, I prefer ENB over KMI. In fact, I added a few shares today.
Title: Re: ENB - Enbridge
Post by: frommi on October 11, 2018, 10:03:05 PM
I think your numbers are a bit off. I do not believe that ENB leverage is 6.4x EBITDA. n their investor presentation is is noted as being 5x, which does not include the preferred , which I think are roughly $7B CAD, so they would make around 5.6x all inclusive. Also note they ENB recently sold assets for 7B CAD. I think the picture gets clearer once the assets sales and the retructuring of the MLP subs is complete. Right now, at current prices  ENB DCF is around 4.35 CAD/ share, which translates into a 10%+ cash yield. ENB is also on track to increase  their DCF by 20% YoY.

KMI has a bit lower leverage, but I think their assets overall are of somewhat lower quality. For example about 15% of KMI cash flows are from the CO2 segment, which is an E&P in disguise and really deserves a 5x multiple only.

I own both KMI and ENB, but own more ENB. At current valuations, I prefer ENB over KMI. In fact, I added a few shares today.

It is even worth than previously calculated: (All numbers in CAD)

Long Term Debt: 59940
Short Term Debt: 1014+4779
Preferred: 7747
Redeemable noncontrolling interests: 4433
Minorities: 6100
-Cash: 622
Shares out: 1715

EV: 83391  + 1715*41.49 = 154546
EBITDA: 11476 (last 6 months annualized, added back Asset impairment)

EV/EBITDA: 13.46
Debt/EBITDA: 7.3

With the latest deal to take over the partnerships they will reduce my calculated leverage, but of course you have more shares outstanding after that deal. So its probably a wash for EV/EBITDA, because the partnerships also trade around 12x/EV/EBITDA right now. I can`t really see how they can afford to sustainable raise the dividend by 10% each year going forward. They were able to do so in the past because they increased the leverage each and every year. I wouldn`t be surprised if they have to slash the dividend if we get a tight credit market. KMI on the other hand has already gone through this and is able to fund its cashflow need internally. Please find my mistake, because i really want to invest here but the numbers don`t allow me to do it right now.
Title: Re: ENB - Enbridge
Post by: frommi on October 12, 2018, 10:31:08 AM
I think your numbers are a bit off. I do not believe that ENB leverage is 6.4x EBITDA. n their investor presentation is is noted as being 5x, which does not include the preferred , which I think are roughly $7B CAD, so they would make around 5.6x all inclusive. Also note they ENB recently sold assets for 7B CAD. I think the picture gets clearer once the assets sales and the retructuring of the MLP subs is complete. Right now, at current prices  ENB DCF is around 4.35 CAD/ share, which translates into a 10%+ cash yield. ENB is also on track to increase  their DCF by 20% YoY.

KMI has a bit lower leverage, but I think their assets overall are of somewhat lower quality. For example about 15% of KMI cash flows are from the CO2 segment, which is an E&P in disguise and really deserves a 5x multiple only.

I own both KMI and ENB, but own more ENB. At current valuations, I prefer ENB over KMI. In fact, I added a few shares today.

Looks like you are right, over the past 20 years ENB traded on average at 14x EV/EBITDA (KMI only at 12x, so it looks like the market gets the higher asset quality) and after they buy out the MLPs my calculated leverage is more normal again. Started a small position. Thanks!
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 12, 2018, 10:47:20 AM
I think your numbers are a bit off. I do not believe that ENB leverage is 6.4x EBITDA. n their investor presentation is is noted as being 5x, which does not include the preferred , which I think are roughly $7B CAD, so they would make around 5.6x all inclusive. Also note they ENB recently sold assets for 7B CAD. I think the picture gets clearer once the assets sales and the retructuring of the MLP subs is complete. Right now, at current prices  ENB DCF is around 4.35 CAD/ share, which translates into a 10%+ cash yield. ENB is also on track to increase  their DCF by 20% YoY.

KMI has a bit lower leverage, but I think their assets overall are of somewhat lower quality. For example about 15% of KMI cash flows are from the CO2 segment, which is an E&P in disguise and really deserves a 5x multiple only.

I own both KMI and ENB, but own more ENB. At current valuations, I prefer ENB over KMI. In fact, I added a few shares today.

It is even worth than previously calculated: (All numbers in CAD)

Long Term Debt: 59940
Short Term Debt: 1014+4779
Preferred: 7747
Redeemable noncontrolling interests: 4433
Minorities: 6100
-Cash: 622
Shares out: 1715

EV: 83391  + 1715*41.49 = 154546
EBITDA: 11476 (last 6 months annualized, added back Asset impairment)

EV/EBITDA: 13.46
Debt/EBITDA: 7.3

With the latest deal to take over the partnerships they will reduce my calculated leverage, but of course you have more shares outstanding after that deal. So its probably a wash for EV/EBITDA, because the partnerships also trade around 12x/EV/EBITDA right now. I can`t really see how they can afford to sustainable raise the dividend by 10% each year going forward. They were able to do so in the past because they increased the leverage each and every year. I wouldn`t be surprised if they have to slash the dividend if we get a tight credit market. KMI on the other hand has already gone through this and is able to fund its cashflow need internally. Please find my mistake, because i really want to invest here but the numbers don`t allow me to do it right now.

Two errors- you added in the current portion of the long term debt, but it is included in the LT debt already. So you are double counting the $4.8 CAD in debt. Y2018 cash flow is $12.5 not $11.5B CAD.


Edit, just noticed that above is incorrect and the $4.8B CAD “current portion of LT debt“ needs to be added to the debt
Title: Re: ENB - Enbridge
Post by: Uccmal on October 12, 2018, 02:52:18 PM
Frommi, .for what its worth your concerns are totally legit.  I have similar concerns and suspect concerns around liquidity are the reasons the stock is so cheap right now.  For me its a show me stock.  The other side of the coin is that it likely wont trade real low.  It has a huge moat of profitable transportation. 
Title: Re: ENB - Enbridge
Post by: gokou3 on October 12, 2018, 03:09:47 PM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 12, 2018, 03:27:53 PM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

1) I have read it and I think the author has been mostly proven wrong. there was a detailed comment regarding that Adresse the ma8n thesis, that maintenance Capex is underreported. one can conclude from this that the author does not really understand the accounting and the balance sheet.

2) ENB was able to monetize assets for $7B CAD releaving pressure on thr balance sheet
3) ENB beat DCF projections
4) Line 3 replacement appears on track.

Nothing came to pass as predicted by the author.
Title: Re: ENB - Enbridge
Post by: Uccmal on October 15, 2018, 05:26:54 AM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

1) I have read it and I think the author has been mostly proven wrong. there was a detailed comment regarding that Adresse the ma8n thesis, that maintenance Capex is underreported. one can conclude from this that the author does not really understand the accounting and the balance sheet.

2) ENB was able to monetize assets for $7B CAD releaving pressure on thr balance sheet
3) ENB beat DCF projections
4) Line 3 replacement appears on track.

Nothing came to pass as predicted by the author.

Its number 4 that worries me most.  I will feel better about this once they get the Minnesota portion in the ground. 
Title: Re: ENB - Enbridge
Post by: peterHK on October 17, 2018, 06:12:36 AM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

Lots of people have made this thesis before, saying the assets aren't maintained well because MCX is too low, but I think they forget there are maintenance expenses that are expensed on the income statement. If you look at what is expensed and capitalized, they clearly spend a lot caring for and maintaining the assets.
Title: Re: ENB - Enbridge
Post by: JRM on October 17, 2018, 09:21:20 AM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

Lots of people have made this thesis before, saying the assets aren't maintained well because MCX is too low, but I think they forget there are maintenance expenses that are expensed on the income statement. If you look at what is expensed and capitalized, they clearly spend a lot caring for and maintaining the assets.

I don't know how things work in Canada, but in the U.S. some states allow certain expenses incurred in order to comply with 49 CFR 192 and/or 195 to be passed onto the rate payer.  This constitutes the largest expense for maintaining a transmission pipeline.  If the Direct Assessments determine that a section of the pipeline isn't fit for operation, then in most cases the section of pipeline can be replaced under the capital budget.  Many of these pipelines were built in the 1960's or earlier and have been completely depreciated.
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 18, 2018, 04:29:13 AM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

Lots of people have made this thesis before, saying the assets aren't maintained well because MCX is too low, but I think they forget there are maintenance expenses that are expensed on the income statement. If you look at what is expensed and capitalized, they clearly spend a lot caring for and maintaining the assets.

I don't know how things work in Canada, but in the U.S. some states allow certain expenses incurred in order to comply with 49 CFR 192 and/or 195 to be passed onto the rate payer.  This constitutes the largest expense for maintaining a transmission pipeline.  If the Direct Assessments determine that a section of the pipeline isn't fit for operation, then in most cases the section of pipeline can be replaced under the capital budget.  Many of these pipelines were built in the 1960's or earlier and have been completely depreciated.

The above was something they the author of the short thesis in VIC was totally missing and it was clear from that point thet he didnít understand the financials of the pipeline business.

As was pointed out by UCCMAL, the Achims heel of ENB is the cst of debt. ENB needs to stay investment grade and that is why they have done sales of noncore assets for $7.5B CAD, which IMO go their leverage in control. In addition, the restructuring of the MLP subs is credit positve as well, as indicated in Moodyís rating notes.
Title: Re: ENB - Enbridge
Post by: Uccmal on October 18, 2018, 05:02:52 AM
Has anyone read the VIC write-up back in May 2018?  It was a short idea, and the main premise of the author is that ENB has underreported its maintenance capex and that the company would have negative FCF after dividends if they used the true maintenance capex instead.  He has been rebutted within that forum but I'd just like to know what others here think.

Lots of people have made this thesis before, saying the assets aren't maintained well because MCX is too low, but I think they forget there are maintenance expenses that are expensed on the income statement. If you look at what is expensed and capitalized, they clearly spend a lot caring for and maintaining the assets.

I don't know how things work in Canada, but in the U.S. some states allow certain expenses incurred in order to comply with 49 CFR 192 and/or 195 to be passed onto the rate payer.  This constitutes the largest expense for maintaining a transmission pipeline.  If the Direct Assessments determine that a section of the pipeline isn't fit for operation, then in most cases the section of pipeline can be replaced under the capital budget.  Many of these pipelines were built in the 1960's or earlier and have been completely depreciated.

The above was something they the author of the short thesis in VIC was totally missing and it was clear from that point thet he didnít understand the financials of the pipeline business.

As was pointed out by UCCMAL, the Achims heel of ENB is the cst of debt. ENB needs to stay investment grade and that is why they have done sales of noncore assets for $7.5B CAD, which IMO go their leverage in control. In addition, the restructuring of the MLP subs is credit positve as well, as indicated in Moodyís rating notes.

Spek, I think your dictation was acting up :-). 

Anyway, this article and dozens of others seem to indicate that Pipelines in general are perpetually full. 
Since Enbridge and its competitors make their money on a fixed spread then the cash keeps coming through the door. 
https://www.cbc.ca/news/business/wcs-wti-alberta-oilsands-1.4865198

Title: Re: ENB - Enbridge
Post by: petec on October 29, 2018, 02:19:48 AM
I used to know this fairly well 12 years ago and then it dropped off my radar. Recently bought some KMI and it reminded me, so I've read back over this discussion and looked at the company's most recent presentation. Based on this limited research my first take is as follows.

The DistCF yield is 10% going to 12% in 2020 ($5 per share). That ought to be inflation-linked so you can probably equate it to a 15% nominal return. Assuming some of it is retained and reinvested in projects at a decent return, your nominal return might be a little above 15%, with low intrinsic business risk.

That's attractive until you consider:
- debt/ebitda is 5x and leverage is higher once you consider prefs and minorities.
- regulation/pricing is simple at a high level but pretty complex if you want to get into the weeds. Changes probably won't be huge at the enterprise level but there's a lot of leverage, so it might take a lot of work to get comfortable with the risk to equity.
- management aren't great capital allocators.

Then, a 15% nominal return suddenly doesn't look so compelling.

Am I framing this right? What am I missing?

Many thanks.
Title: Re: ENB - Enbridge
Post by: frommi on October 29, 2018, 04:35:53 AM
It would be great if they can deliver on the 10% DCF yield, but i doubt that they had the dilution for the simplification in mind when they gave the guidance. By my math the DCF/share will be 20% lower after the deals are done. At the current share price it will be still a 8.5% DCF yield which is not bad, but the leverage is still high and that leaves only 2% for additional reinvestment. The major unknown for me is how much growth is already paid for that comes online over the next year. And the leverage at that point including preferred is still at 5.8xEBITDA.
KMI on the other hand trades at a "true" DCF yield of 11.5% with a leverage of 4.5x and they have growth of 500 million coming online over the next year which means leverage goes to 4x next year. KMI wins on every metric and clearly has the better capital allocator at the helm. I still think that ENB is not a bad deal here, but KMI is so much better right now that i will only invest more money into ENB if my position size for KMI is maxed out. Earnings for ENB come on friday, i am curious if that includes a new guidance for DCF/share. Maybe we get a sell off and a more attractive entry point after that.
Title: Re: ENB - Enbridge
Post by: petec on October 29, 2018, 04:42:31 AM
The presentation I used contained both the $5/share dcf guide for 2020 and the simplification deals, so I assumed the one included the other. Otherwise I tend to agree, although I havenít done any maths myself. Still trying to figure out how much time to invest.
Title: Re: ENB - Enbridge
Post by: frommi on October 29, 2018, 05:39:57 AM
Thanks for the reminder to look at the presentations. I looked at their latest presentation and you are right, the current guidance of 4.3$ already includes the lower DCF/share for the next 2-3 quarters, since they have already delivered 2.47$ this year. So the current 2018 run rate after the dilution is 3.66$/share ((4.3-2.47)*2). According to their graph in 2019 the guidance is a marginal higher DCF and only in 2020 the DCF/share will go up a lot. The 22B in growth that they mentioned will probably be enough to reach the 5$/share target in 2020, but that assumes that everything goes perfectly well into 2020.
Title: Re: ENB - Enbridge
Post by: petec on October 29, 2018, 11:33:13 AM
Good point about the run rate. I think I will focus elsewhere for now.
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 29, 2018, 01:08:06 PM
It would be great if they can deliver on the 10% DCF yield, but i doubt that they had the dilution for the simplification in mind when they gave the guidance. By my math the DCF/share will be 20% lower after the deals are done. At the current share price it will be still a 8.5% DCF yield which is not bad, but the leverage is still high and that leaves only 2% for additional reinvestment. The major unknown for me is how much growth is already paid for that comes online over the next year. And the leverage at that point including preferred is still at 5.8xEBITDA.
KMI on the other hand trades at a "true" DCF yield of 11.5% with a leverage of 4.5x and they have growth of 500 million coming online over the next year which means leverage goes to 4x next year. KMI wins on every metric and clearly has the better capital allocator at the helm. I still think that ENB is not a bad deal here, but KMI is so much better right now that i will only invest more money into ENB if my position size for KMI is maxed out. Earnings for ENB come on friday, i am curious if that includes a new guidance for DCF/share. Maybe we get a sell off and a more attractive entry point after that.

There is no dilution from simplification, because the cash yield from EEP and SEP is about equal than the cash yield from ENB

Cash yield for SEP ($1.65B DCF) ~10%
Cash yield for EEP ($1.35-1.4$/unit) ~13.5%
Cash yield for ENF ( 7.5% yield /0.85 coverage ~8.8% DCF yield

Currently ENB yields 11% on DCF, so if you add it up, it should be about DCF neutral, not counting any cos savings from the consolidation. the biggest advantage is that ENB after the merger will have access to all the DCF from the dormer subs, not just that from their partial ownership and the EBITDA/EV ratio should look better. Also, ENB retains ~40% of its DCF which is much more than the subs did, so with increasing retention, the ability to self finance will get better too.
Title: Re: ENB - Enbridge
Post by: petec on October 29, 2018, 01:13:14 PM
The presentation states that the simplification will be accretive from 2020, which implies some dilution in 2019.
Title: Re: ENB - Enbridge
Post by: Spekulatius on October 29, 2018, 01:18:53 PM
The presentation states that the simplification will be accretive from 2020, which implies some dilution in 2019.

Based on my math, and the size of the takeover relative to ENB, the dilution canít be substantial. I expect the $7.5B CAD in asset sales to have a larger impact, but then again, it reduces dilution too.
Title: Re: ENB - Enbridge
Post by: frommi on October 29, 2018, 01:48:51 PM
The presentation states that the simplification will be accretive from 2020, which implies some dilution in 2019.

Based on my math, and the size of the takeover relative to ENB, the dilution canít be substantial. I expect the $7.5B CAD in asset sales to have a larger impact, but then again, it reduces dilution too.

My fault, sorry. I thought that the cashflows are already consolidated, but they subtract the distributions to minorities to calculate DCF/share so it should not be impacted.