Updated: Mar 10, 2020
By: Diel Fernandes
DCF/share was $1.02 in Q4/19 vs. estimates of $1.00. Full year DCF/share was $4.57, which was at the higher end of management guidance of $4.30-$4.60. The improvement in the metric was driven by lower than expected maintenance capex. Adjusted EBITDA was $3.186 billion in Q4/19 vs. estimates of $3.268 billion. The miss in EBITDA expectations was due to weaker contribution from the Mainline and Energy Services segments. In addition to lower gas prices and higher operating costs linked with the Texas Eastern natural gas pipeline blast in Kentucky in August. Adjusted EPS was $0.61 in Q4/19 vs. estimates of $0.64.
Company Overview ENB placed $7 billion of new projects into service in the fourth quarter, of note is the Canadian segment of the Line 3 Replacement project, under an interim surcharge agreement.It delivered 100kbpd of planned Mainline optimizations, providing much needed egress capacity for Western Canadian producers.It closed the second phase of the Canadian midstream sale, concluding the announced $8 billion asset sale program, achieving 4.5x Debt/EBITDA at year end - this is a huge positive (it reduced Debt/EBITDA from 6x in 2016 to 4.5x in 2019).Announced the $0.2 billion sale of the Montana-Alberta Tie Line (MATL); further increasing financial flexibility.
Outlook & Management Guidance Management is guiding for full year 2020 DCF/share of $4.50-$4.80 and longer term 5 to 7% DCF per share growth outlook.Increased the quarterly dividend by 9.8% for 2020 to 81 cents per share, reflecting strong operating and financial performance. ENB is planning for a further 50 kbpd of Mainline optimizations along with a 50 kbpd expansion of the Express Pipeline in 2020, which should provide WCSB producers with at least 200 kbpd of much needed additional pipeline capacity.
Impact: Neutral. The improvement in the DCF/share was largely offset by the missed EBITDA and EPS estimates.
PM's Opinion Our thesis on Enbridge continues to be strong. The low-risk pipeline-utility business model provides a good hedge within our energy/natural resources sector with 96% of cash flows contracted. Furthermore, our model pointed to a price target of ~$56/share which did not include any volumes from the US portion of the Line 3 expansion while our estimates of the Canadian Line 3 included only the surcharge (which is 55% of the price of transporting a barrel). Having said that, once the US and Canadian portion of the line 3 are fully operational, throughput volumes will increase by 370kbbl/d, improving EBITDA margins and should the energy regulator approve ENB contracting 70% of the Mainline volumes into long-term contracts, it would improve cash flow visibility, de-risking the business even further and improving stock performance. In other words, full realization of the Line 3R volumes and tolls would increase our price target. Overall, 2019 was a good year of ENB.