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Enbridge: Shares to Touch $46 Amid Strong EPS Visibility

 October 11, 2012 02:53 PM


(By Mani) Enbridge Inc. (NYSE: ENB) shares could touch $46 in the near-term, driven by higher growth expectations from the liquids segment while committed projects ensure profitability and dividend growth.

Enbridge transports and distributes energy in North America. Enbridge operates one of the world's longest crude oil and liquids transportation system; engages in natural gas gathering, transmission and midstream businesses. It also provides natural gas distribution services in Canada and New York State.

The company transports 65 percent of western Canadian crude oil exports and satisfies 13 percent of the U.S.'s daily crude oil import. In addition, it owns about 72 percent in Enbridge Income Fund and a 25 percent overall interest in Enbridge Energy Partners L.P. (NYSE: EEP).

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The company held its annual analyst days in Toronto and New York recently and provided its long-term view on earnings growth. Enbridge emphasized growth targets for earnings of 10 percent to 12 percent and dividend growth of 11 percent to 15 percent in its guidance related to the five year plan.

"In our view, the summary points of $18 billion of commercially secured projects (up from $9 billion a year ago) in the ENB five-year plan provide visibility to an earnings growth rate in excess of 10 percent and dividend growth of 12 percent over the next five-years," Deutsche Bank analyst Curt Launer wrote in a note to clients.

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The Seaway Pipeline is considered as the next leg of growth for the company as it moves from 150,000 barrels per day (b/d) to 400,000 b/d in the first quarter of 2013 to 850,000 b/d in 2014 along with the Flanagan South Pipeline.

In the Bakken, Enbridge showed an updated "Bakken Expansion Program" including about 325,000 b/d of combined pipeline and rail with a cost of about $3.0 billion. Beyond these near term projects, ENB showed upside in natural gas projects from the Marcellus and Utica shale and in its "Light Oil Market Access" initiative.

The summary of $18 billion of secure projects, $12 billion of probable projects and $5 billion of risk-adjusted future projects provides a long term view of the continued growth for the company.

Meanwhile, the five-year plan includes $5.6 billion in maintenance capex over the five years, an increase from $3.2 billion a year ago.

Enbridge shows a balance sheet that is in line with the comparable companies in terms of a debt ratio under 40 times and also has the lowest dividend payout ratio in the group. In addition, Enbridge has credit facilities in place of about $11 billion that are largely unutilized.

"The equity required for the overall plan is about $6 billion over the five-years. Net of ESOP shares, preferred shares and the offerings done in 2012, ENB requires about $2 billion of equity," Launer said.

The growth of Calgary, Alberta-based Enbridge is heavily levered on the North American oil production ramp-ups, especially Canadian and Bakken crude oil. A low oil price/sustained decrease in drilling activity, would impact the pace of oil infrastructure required apart from reducing throughputs and margins in the existing pipelines.

For the second quarter, Enbridge (TSX:ENB) earned C$11 million, or C$0.01 per share, down sharply from C$302 million, or C$0.40 per share, in the year-ago period. Adjusted earnings rose to C$277 million, or C$0.36 per share, from C$258 million, or C$0.34, in the prior-year period. Revenue for the quarter declined 18 percent to C$5.72 billion.

Looking ahead, Enbridge said that its steady performance over the first half of 2012 keeps it on track with its fiscal 2012 adjusted earnings per share guidance range of C$1.58 to C$1.74. Analysts expect the company to earn C$1.66 per share.

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