Link here over at SeekingAlpha.
Summary
- Back in March, with its NYSE shares trading at $33.50, I suggested that ENB was 40% undervalued.
- Shares probed under $30 in April, looking for a bottom. I think that got management's attention.
- As expected, due to natural gas seasonality and a full quarter of Spectra contributions, the Q1 EPS yoy comparison was a breeze.
- But the recent strength in the stock is due more to announced and potential asset sales to address the market's big concern: Debt.
As I suggested in my March article on Enbridge,
Q1 year-over-year comparisons would be easy considering it would be the
first full Q1 worth of Spectra contributions, as well as a seasonally
strong quarter for the natural gas businesses.
That said, I was
pleasantly surprised with the Liquids Pipelines Mainline System Segment -
which delivered its highest ever quarterly volume. But it was the
announcement of ~$3 billion in asset sales, as well as reported strong
bidding for additional midstream assets, that put a bid in the
languishing stock. It is clear investors want management to regain
investor confidence by selling non-core assets and addressing the big
concern: The debt load needed to fund the Spectra merger.
The Q1 EPS report was generally bullish with adjusted EPS of $0.82 exceeding average analyst expectations by $0.18/share. As shown in the graphic below, while yoy EBITDA and net earnings were lower, cash from operations ("CFO") was up 80%, while distributable cash flow ("DCF") was up a whopping 90%.
Management has certainly gotten the message with respect
to investor concern over the high debt level and the significant
interest expense. And it should have - the ~25% sell-off in the shares
after the Spectra merger left some to wash off egg on their faces.
However, it would appear the low is in, the 6.3% yield is safe and
secure, and the prospect of further asset sale announcement this year
could propel ENB closer to the $40 level than the $30 level it has been
hovering around for most of this year.
ENB is a buy for
income-oriented investors who also want to take a flyer on additional
asset sale announcements that could easily add another $4-5/share in
capital appreciation.
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investment or financial decisions based on what you read here or what
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