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Enbridge: Respectable Rewards, Unparalleled Reliability

Jun. 03, 2020 1:14 PM ETEnbridge Inc. (ENB), ENB:CA40 Comments


  • Enbridge is the largest remaining publicly-traded midstream company, with strong cash flow abilities and utility-like characteristics.
  • We expect the company to continue generating cash flow going forward. At the same time, the company has some exciting potential growth projects.
  • Going forward, we expect Enbridge to generate strong shareholder rewards for those who take advantage of current prices to invest.
  • There are some risks due to COVID-19 and government regulation; however, the business has strong visibility on these.
  • I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Enbridge (NYSE:ENB) is a Canadian multinational energy transportation company, one of the largest publicly-traded energy companies with a market capitalization of more than $65 billion. The company operates a mid-high single-digit dividend and has seen its share price remain strong during the oil price downturn. However, despite that, the company has significant potential going forward.

Three Enbridge pipelines shut after Kentucky natgas line fire ...

Enbridge - BOE Report

Enbridge 1Q 2020 Results

In the middle of one of the largest oil business interruptions, Enbridge has performed incredibly well.

Enbridge 1Q 2020 Results - Enbridge Investor Presentation

The company had 1Q 2020 results with DCF of $1.34/share. That means annualized cash flow at $5.36/share. The company is still predicting 2020 FCF at $4.65/share. That's quite respectable, and given the company's current price of roughly $32.45/share USD that means a market capitalization to FCF ratio of less than 7.5.

That highlights the strength of the company's position.

The company's results have exceeded its budget. The company took advantage of the collapse to sell $0.4 billion of assets and is advancing other projects. At the same time, the company has deferred $1 billion of growth capital spending, reduced costs by $0.3 billion, and increased available liquidity to $14 billion.

These things together support the company's financial position.

Enbridge 1Q 2020 Results - Enbridge Investor Presentation

Looking at the details of the company's 1Q 2020 financial performance, the company performed incredibly well. The company saw 1Q 2020 adjusted EBITDA virtually the same as 1Q 2019 adjusted EBITDA. The 0.2% decline in the company's adjusted EBITDA came with a 2% increase in adjusted earnings and a 2% decline in DCF.

Overall, the company's 1Q 2020 earnings were very respectable.

Enbridge Portfolio Resiliency

The company's strength in the COVID-19 related collapse is supported by its portfolio's resiliency.

Enbridge Portfolio Resiliency - Enbridge Investor Presentation


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Comments (40)

autofocus111 profile picture
Offshore wind is the future of wind power and is an excellent strategy by ENB to slowly shift focus towards renewable power. L3RP, after long delays, is jumping the last couple of hurdles and will be cleared for construction likely before end of 2020. Look for either ENB or TRP to buy a 51% stake in the Canadian government's TM pipeline when the expansion is completed. I also would not be surprised to see ENB eventually acquire a US natgas distribution system that ties into their pipeline network, to go along with their Ontario natgas utility business. ENB will continue to grow for many years.
autofocus111 profile picture
ENB CEO on the green shift.

Bernie Madeoff1 profile picture
Adding the now retired Bank of Canada Governor to ENB's board of Directors was a brilliant move and worth at least 5-8 % points....The future looks GREEN!!!
Enbridge Line 3 project faces more delays from longer permit process again. Enbridge is a quality company but it will face some downward pressures again soon. So prepare to load up on puts or short the market in the short term
ESGFIRE profile picture
Do you expect enbridge to drop down again a in share price ? Why?
As I have seen before when news of these delays surfaces, there is some confusion then a drop. Also if you look at RSI, %W and fib, they are already in the top bands. So the chances of going lower is high. The average bottom could be 27ish range using US Enbridge stock. I cannot say if it will be violent drop or slow grinding choppy drop, however
Vandooman profile picture
Good analysis. I am long ENB but US investors need to be aware of a) currency risk and b) Withhold tax. I recommend holding ENB in an IRA or 401K to avoid withhold. You can get a foreign tax credit in a taxable account but you will not recover 100% and the tax forms are annoying to say the least. For those who poo poo currency risk I avoided a 30% loss on my Canadian holdings by divesting at par, and the low point in 2002 was 62 cents. Don't bet the farm in foreign currencies.
ESGFIRE profile picture
Isn’t enbridge listed on both the Toronto and NYSE?
Perfect timing-another Minnesota Line 3 delay today!
Yes, and the story keeps repeating itself for years now... It's unfortunate, at least for investors.
What else would we expect from the totally incompetent MN government?
Thank you
Ján Mazák profile picture
The $1.34 is in CAD, so the stock is 35% more expensive than you think. And you mix up DCF and FCF in the text as if it was the same.

A portion of DCF is a return of capital (in the economic sense --- portions of the assets have very finite life). Do you really think that this ~9% DCF yield (adjusted for ROC, but even without that just 10%) compensates for all the risks?

Perhaps better than owning cyclicals at P/E (with normalized E) of 25-30 as some of them trade at, but not that much of a bargain.
Matthew Brown profile picture
Using P/E to value enbridge is not ideal. They make high use of depreciation to artificially deflate earnings.
Value this and other utilities on cash flow
Vandooman profile picture
Artificially? You mean they follow accounting standards? What on Earth are you talking about?
Yes they follow accounting standards which artificially lowers their earnings. Hence why any company with a high fixed cost asset base uses depreciation to reduce taxation at the corporate level. Such a firm is usually priced based on their cash flow and ability to cover their coats and dividends.
You identify the following risk in the article.

"There has been a dramatic increase in regulation and protests against natural gas and oil pipelines in Canada. While the company has built up much of its existing portfolio, that could put additional pressure on potential future growth."

I view this as a benefit. They experienced much more stable stock pricing compared to Permian pipelines during the recent market crash due to there currently being insufficient capacity from Canada. If companies were going to reduce production the pipeline would still be fully booked as the cuts would come from rail.
Canuck_in_LV profile picture
The current Canadian government is a threat to any hydrocarbon based energy company. We need a change in government here to bring more balance back into the energy industry.
I agree with you re: change in government. but the covid crisis is going to force the Liberals to rethink their policy decisions on pipeline expansion and the environment. Even the Courts are getting tired of hearing the constant applications that are only intended to prevent economic growth; a few recent decisions have swung the pendulum in favour of pushing ahead with pipelines and focusing on more development in the resource sector. Remember: Justin & his merry band of Liberals bought a pipeline! (TransMountain for 4.5 billion). What are the liberals going to do with it? I suggest that pipeline will be built to kickstart our economy and pay off the quazillion $ in debt the Liberals have spent due to covid. To think that Canada can survive economically by ignoring the hundreds of years of having a resource based economy (to the exclusion of developing other economic strengths) and pretending we can continue to maintain the social 'safety nets' we have to pay for is unrealistic. I think Enbridge is going to thrive with the anticipated changes in Canadian environmental policy that the Liberals will unilaterally impose; how else are they going to get votes in Western Canada? How else will they collect revenues to pay down the debt?
Canuck_in_LV profile picture
I completely agree with your analysis - it's solid rational thinking. The only problem that I have with it is that you expect the Liberal government to pursue solid rational thinking - this is the party that panders to every minority to buy votes with tax dollars. The overall population of Canada is too ignorant to understand your points, unless they are in the west. I don't have faith in the average Canadian to understand the economy and thus make the right political choices that would support their economic analysis. They are too interested in "free" (long term debt money supplied by the taxpayers) money and not going back to work. I wish that reality meets your analysis - I really do.
Canuck_in_LV profile picture
This analysis is consistent with everything else I have read about ENB. Wish I had more cash right now to buy more. It's been a solid performer for me at an entry point of less than $30 USD /share.
Allinvestor profile picture
Been thinking about dropping KMI and replacing it with ENB due to apparent higher resilience at ENB and better growth pipeline, while the yield is pretty much the same. Any thoughts?
Remember the Canadian tax on non retirement accounts when calculating your dividend yield.
Canadian dividend tax withheld can most often be claimed as one-to-one credit as if payment against US federal tax.
Thomas Yeggy profile picture
I am currently trying to submit documents that will waive the w/h tax.There is a tax treaty between the US and Canada (See Article XXI Para 2) but best to hold in individual account lots of paperwork in retirement accounts
Biden is the big risk-that is the internal view at ENB.
Old Professor profile picture
@Pro Dist No doubt about that.
Takes more than one monkey to make a zoo. I wouldn’t waste too much time trying to outsmart an uncertain future!
@kieks Not sure what you mean by monkeys. We seem to have enough for a zoo if you mean Biden and Trump and practically all the rest of our politicians. I remember Biden making a speech he copied from the British Prime Minister Callaghan. He was speaking in Pennsylvania, which had a lot of coal mines, so he thought it apropos to include the line in which Callaghan mentioned his coal miner relative. Sadly, while Callaghan had such relatives Biden did not.

Trump...ineffable. "Material for a whole conference there" (if you remember Fawlty Towers). But I'm going to vote for him. At least he isn't afraid to say what he thinks. And...no, that's pretty much it.
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