Update On Enbridge -- Mike Fitzsimmons -- May 11, 2018

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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