Enbridge Is A Core Retirement Portfolio Holding (NYSE:ENB) - Seeking Alpha

Enbridge Is A Core Retirement Portfolio Holding (NYSE:ENB) | Seeking Alpha

Enbridge Is A Core Retirement Portfolio Holding

Enbridge Inc. (ENB),
ENB:CA 11 Comments

Summary

- Enbridge is a large midstream company in Canada with a market capitalization of over $70 billion and a dividend yield of over 7%.
- The company has a strong portfolio of assets, including major pipelines and a substantial gas transmission LNG asset.
- Enbridge is building up its utility business and has a significant number of renewable projects under development, which will expand its long-term revenue.
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Enbridge (NYSE: ENB) is one of the largest midstream companies, focused in Canada, with a market capitalization of more than $70 billion. The company has a dividend yield of more than 7%. As we'll see throughout this article, the company's recent dip in share price enables the company to drive more substantial shareholder returns.

Enbridge Pipeline Overview

Enbridge has an impressive portfolio of assets.

Enbridge Investor Presentation

The company's core business involves several major pipelines such as the Mainline pipeline, one of the most significant pipelines on the North American continent. The pipeline had record volumes of 3.1 million barrels/day with the open season upsized and extended. The company has access to 75% of the refining capacity access in the U.S. and this pipeline will remain essential.

The company expects escalators to start next year and is working to fix and re-run Line 5. The essential nature of this infrastructure means we expect it'll get approved. The company has bolt-on assets starting with open season at the end of the year, and volumes remaining strong.

Enbridge Investor Presentation

The company also has a substantial gas transmission LNG asset it's built that connects to the major Rio Grande LNG asset. The company has a $1.2 billion cost for Phase I, as it supplies 100% of the feedstock gas to Rio Grande LNG. LNG plants have a multi-decade lifespan, and that'll provide reliable cash flow on the asset for the company.

The company is also building up Canadian Gas transmission in the West, essential as Middle Eastern LNG goes to Europe and Canada has high premiums for transporting assets outside of its core asset bases. The Woodfibre LNG has 60% engineering on track for the second half of the year, and it's building up relevant gas storage assets.

Enbridge Utility Business

The company has worked to build up a strong utility business, highlighting its financial strength.

Enbridge Investor Presentation

The company has a massive number of renewable projects under development. A substantial % of these are wind projects, especially offshore wind which is growing rapidly. In North America, the company has more than 4.5 GW worth of projects in development, across a number of wind and solar projects.

These renewable projects will enable the company to substantially expand its reliable long-term revenue.

Enbridge Investor Presentation

The company is building up a strong utility business in parallel with its renewable business, which provides substantial reliability to its cash flows. The company has grown from 3.5 million to 3.9 million connects, and expects 42k more connections in 2023. As the urban Canadian population grows, the company's strength will improve.

The company has continued to achieve strong ROE on its assets, and we expect its growth to continue.

Enbridge Cash Flow Strength

The company's cash flow strength is becoming increasingly reliable.

Enbridge Investor Presentation

The company's asset base is more than 50% liquids pipelines earnings from EBITDA. The company has 47% regulated cash flow and 51% take-or-pay cash flow. 80% of the company's EBITDA has inflation protections with minimal commodity risk and a high % investment grade customers. The company maintains a high credit rating.

That reliable cash flow will help future returns.

Enbridge Target and Financials

The company's financial picture continues to enable strong shareholder returns.

Enbridge Investor Presentation

The company's adjusted EBITDA for the year is expected to hit $16.2 billion as the company's DCF/share increases to $5.45 ($4 USD). The company is impacted by hefty interest rates, and we'd like to see it roll down its debt yield, but its financials remain incredibly strong. Versus the company's $36/share price, it has a 12% DCF yield, showing its financial strength.

Enbridge Investor Presentation

The company's adjusted EBITDA growth is mainly coming from rising tolls on its liquids pipelines. The rest of the company's business has actually seen some weakness. The company's financing costs remain hefty and increased by double-digits YoY, but the company's incredibly strong EBITDA has continued to support its financials and earnings.

Versus the company's $16.2 billion target EBITDA, its debt is $75 billion CAD. That's a massive $56 billion USD debt versus its $73 billion market cap USD. The company plans to continue using its cash flow for growth. Its debt to EBITDA can stay fixed as its EBITDA grows, enabling additional debt capacity for the company.

The company's financial strength and continued growth make it a valuable investment.

Thesis Risk

The largest risk to the company's thesis is the impact of continued debt raises in a rising interest rate, along with protests against the company's operations. Specifically, efforts to get rid of Line 5 or make it difficult to replace. That could dramatically hurt the company's ability to maintain its cash flow and shareholder returns.

Conclusion

Enbridge has seen its market cap trend down by more than 20%. That has pushed the company's yield up to 7.5% and pushed its market capitalization down to just over $70 billion. The company has increased its dividend for 28 consecutive years, which only uses up roughly 70% of the company's DCF. That allows the company to have additional cash for other needs.

Going forward, the company has a robust pipeline of development assets as it continues to build out its renewable business and utility operations. Out of the company's $14 billion USD capital program, $1.3 billion USD is renewables, and more than 50% is gas. That will enable the company's returns to diversify and grow.

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