Enbridge (NYSE: ENB) is one of the largest publicly traded Canadian multinational energy companies, despite the near 35% decline in share price it’s seen from COVID-19. The company offers a dividend of more than 8%, and a long-term growth plan for the changing market environments. As we’ll see throughout this article, the company can generate strong shareholder rewards.
Global Energy Markets
Enbridge is operating in global energy markets that have significant demand as they move towards increased industrialization.
Enbridge expects growing demand in every segment of the energy markets besides coal, although it expects significant growth in renewables. The company sees energy efficiencies providing significant benefits with massive clean energy investments. The company sees clean energy and power grid investment growing from $900 billion to $1.7 trillion.
Through this the company sees EVs moving towards 15% of the global car fleet and solar PV nearly doubling. With minimal crude oil growth, the company sees massive natural gas and renewable growth. Oil and gas investors can be disappointed with their industry changing, or they can take advantage of investing in new growth.
Enbridge is investing in new growth.
Enbridge Cash Flow Strength
At the same time, on tops of significant growth opportunities, Enbridge’s cash flow has remained incredibly strong.
Enbridge Cash Flow – Enbridge Investor Presentation
Enbridge’s business transmits energy across the United States with a massive and impressive portfolio of assets. The company’s businesses have 96-100% reservation based revenue with last mile connectivity, significant domestic connections, and long-term contracted businesses. This resilience of cash flow comes with the company providing its best service to customers.
This cash flow strength supports continued dividends and therefore additional shareholder rewards.
Enbridge Asset Position
Enbridge has a market leading asset position that will support significant shareholder rewards.
Enbridge Asset Position – Enbridge Investor Presentation
Enbridge has been focused on disciplined, low-risk investments in renewable power generation for the past 18 years. The company’s asset portfolio, especially in low cost wind farms and solar energy is unparalleled. In addition, the company has clean geothermal, hydro, and waste heat recovery facilities. All to provide additional reliable cash flow.
Due to lower demand for refineries as a result of COVID-19, the company’s volumes across many parts of its infrastructure have declined. However, the company expects 1Q 2021 mainline throughput in line with 1Q 2020 mainline throughput. That overall system throughput is 2.85 million barrels a day, and the company extracts a toll on each barrel.
The company is focused on continued asset improvements, including the more than $7 billion USD Enbridge Line 3 replacement program, replacing a nearly 60-year old pipeline, with a new, modern, and larger one.
Enbridge Quarterly Financial Results
Looking at the nitty gritty financials, Enbridge has continued to perform exceedingly well.
Enbridge 3Q Results – Enbridge Investor Presentation
Enbridge achieved DCF / share of $1.03 on the back of EBITDA of ~$3 billion. The company’s annualized DCF of more than $4 / share gives the company an EBITDA to DCF ratio of less than 7, highlighting the company’s financial strength. The company’s continued DCF usage across its businesses led it to re-affirm its 2020DCF guidance of a midpoint of $4.65 / share.
At that point, the company would have a market capitalization to DCF ratio of ~6. The company has completed its 2020 funding plan, and it’s continuing to plan out its 2021 funding plan. The company is expected to maintain within the range of its 4.5-5.0x debt to EBITDA range, on the back of continued strength in its EBITDA.
However, it’s worth noting, versus most companies, that debt to EBITDA is considered quite high. The company is continuing its massive $11 billion capital program with $14 billion in maintained and excess available liquidity for itself. The company’s <1% drop in YoY DCF highlights the overall strength of its financial positioning.
Enbridge 2020 Results and Future
Looking long-term, Enbridge has continued strong 2020 results and has the ability to generate significant shareholder returns.
Enbridge 2020 Results – Enbridge Investor Presentation
Enbridge expects respectable DCF growth, where it expects to hit its midpoint of roughly $4.65 / share. That represents roughly 2% YoY growth, versus 3% YoY growth the previous year. This highlights the strength of the company’s business during a downturn. The company has had some struggles, more significantly DCP’s distribution cut.
The company has managed to complete its 2020 funding plan with respectable results. The company spent a massive $4.5 billion on growth capital, $1 billion on maintenance spending, $4 billion in debt maturities, and $2.1 billion in pre-funding. The company funded this with $4 billion in cash flow net of common dividends, $0.4 billion in asset sales, and $7.2 billion in debt and hybrid.
Putting this together, and the company had $5.5 billion in non debt maturity / prefunding expenses and $4.4 billion in cash flow. Post-2021, the company has $5.5 billion cash flow and debt capacity remaining. As the company moves off the back of a massive capital spending program, it does need to tackle its debt, but it will also reap the long-term rewards of this capital.
The company’s capital spending will be $5.5 billion from 2021-2022, with the company having ~$8.5 billion in post-dividend growth capital and ~$2 billion in maintenance capital. The company will have $1 billion in post dividend cash it can use for a variety of things. The company is a giant, but it’s moving towards improving its financial position.
Long-term, we’d like to see the company steadily reduce its ~$50 billion debt load long-term. Worst case, Enbridge does have $4.8 billion in post-dividend cash flow it can utilize towards shareholder returns.
Enbridge’s risk is obviously the chance of something impacting its long-term capital projects. The company is still a cash flow giant with roughly $9 billion in annualized cash flow. The company chooses to spend almost $5 billion on dividend and have billions leftover, however, even with a downturn it can manage its debt.
Past this, we have a company with a $105 billion EV or $55 billion market capitalization generating $9.4 billion in annual cash flow. That’s a great ratio, with the company’s massive capital program ending and the potential for increasing capital rewards. While there’s significant risk, we recommend paying attention to the company’s long-term reward potential.
Enbridge is a valuable major oil company that’s not only adjusting for the times, but aggressively moving towards utility status. The company’s valuable asset portfolio continues to generate billions in annual cash flow in addition to respectable dividends. Currently the company is finishing up a massive capital program, but that should end soon.
Long-term, we expect Enbridge to continue to generate steady shareholder rewards. The company’s rewards can generate continued dividends, and the company has substantial post dividend excess capacity. Currently most of that is used for its capital programs, however, it’s completing some major projects that’ll soon free that up.
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Disclosure: I am/we are long ENB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.