Author Topic: ENB - Enbridge  (Read 16215 times)

peterHK

  • Full Member
  • ***
  • Posts: 110
Re: ENB - Enbridge
« Reply #80 on: December 14, 2018, 10:18:03 AM »
I prefer ENB here as it's a deleveraging story with growth rather than a leveraging story with growth. I'd be a buyer of ENB with a 7 handle on the dividend or ~13.5x EV/EBITDA which I think is a level it'll be hard to go wrong at.

I haven't updated my ENB model in a while, but I'm curious as to why you'd like ENB at 13.5x if KMI trades at 9.5x? I get that KMI has some assets that aren't the best, but they have plenty of super accretive growth projects and are self-funding.
[/quote]

ENB has better assets, bigger growth ahead of it into 2020. I think the jewel is going to be their nat gas business going forward. I think there's a lot of room for accretion in FCF conversion, and I'm getting a 7% dividend vs. 5% for KMI. ENB will be basically self funding as well going forward.


Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3716
Re: ENB - Enbridge
« Reply #81 on: December 15, 2018, 12:03:21 PM »
If memory serves me correctly, ENB has been systematically issuing shares in order to fund dividends. It's one of the reasons I'm not too hot on the company.

The system works better if you issue overvalued shares to pay for fair market dividends. But it sucks when you issue undervalued shares to pay for fair market dividends. It never ends well though.

That's the wrong way to look at it. Just because the cash outflow of CFO - capex - dividend = share issuance doesn't mean they're funding the dividend with shares. It can also mean that they're funding capex with shares.

They were issuing shares to fund their capex program. If you issue shares at a 7% ke and that funds investment into assets with a 15% ROE then that is a good use of shares as it is accretive to the value of the company. Might it have been better to not pay a dividend and reinvest their own internal cash flows? Tough to say because you'd likely be issuing them at a lower multiple as the yield folks will reward the stock if you pay a dividend.

Quite right.  If they reduced the dividend the stock may go way lower, at least for a long while.  They are in most every dividend growth etf or fund in existence and will be an Aristocat next year. 

If they fund growth without further shares being issued and FFO grows, and the dividend grows, then the stock will rise.  Paradoxically, they could then issue shares at 60 rather than 42 Cdn., if need be.  I dont see Enbridge as being a ponzi scheme.  The biggest share issuance allowed them to buy a huge asset in Spectra.  The shares being issued to bring the babies in house are getting compensated by greater total cash flow. 

I agree with peterHK that their future growth, after line 3, is going to come from gas, and I expect eventually storage and renewables.  The runway for these other sectors is far greater.  The will to do any more pipelines for oil is basically at an end for every one.  The politics, permitting, and antipipe groups have made it unworkable in NA, at least.  This of course makes existing arrangements all the more valauable. 
« Last Edit: December 15, 2018, 12:07:22 PM by Uccmal »
GARP tending toward value

Spekulatius

  • Hero Member
  • *****
  • Posts: 1982
Re: ENB - Enbridge
« Reply #82 on: December 15, 2018, 01:02:01 PM »
Their plan is to operate with a coverage ratio of 1.6, meaning that they will distribute  ~62.5% of their distributable cash flow. That seems to be sustainable to me. This also ranks that the day of 10% growth are over, Growthin the future will be more like 5% annually. This actually a very similar to the metrics that WMB is working with (which I also own in size) and reflects the new reality in the pipeline business.

FWIW, ENB’s  EV/EBITDA for 2019 is estimated as 11.9x per Research from Wells Fargo, which dona good job covering the space.
To be a realist, one has to believe in miracles.

Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3716
Re: ENB - Enbridge
« Reply #83 on: Today at 05:15:14 AM »
FWIW, I have seen several analyst estimates ranging from a low price target of 53/54 to a high of 62.

As it rises into that range I will incrementally reduce the size of my position.  The speed of growth will slow down after line 3 is built. 

The low stock price is likely a combination of tax loss selling, waiting to see if the alleged cash flows materialize from the consolidation, and waiting for Line 3 to get underway.  The debt has been brought down and the credit ratings are stable.  The infrastructure is there.  If future dividend growh, without share dilution, is in the suggested range after 2021, it is still as good as neary every other company in the space. 

GARP tending toward value