Post by
Obscure1 on Jan 06, 2024 2:04pm
Building out a target price for ENS
There is no point in buying or holding ENS if you think that the ENB share price is going to go down and stay down.
Recent (as in within 60 days) revised price targets for ENB from 8 analysts average $52.88 as per https://www.marketbeat.com/stocks/TSE/ENB/price-target/#:~:text=ENB%20Price%20Target%20%2D%20Frequently%20Asked%20Questions&text=The%20average%20twelve%2Dmonth%20price,on%20ENB's%20analyst%20rating%20history.
I think the analysts are being overly cautious given what I expect will be lower interest rates and mgmt's ability to acclimate acquistions on time and on budget. While ENB doesn't expect the Dominion natgas distribution acquistion to have much if any material effect on 2024 financials, the market looks ahead. A year from now, I expect the Dominion natgas distribution acquisiton will be a shining star in a similar way to the market discovering that the Spectra natgas pipeline acquisiton was an awesome deal about a year after the purchase date. As such, I'm sticking to my 12 month target price of $55 for ENB.
Here is how I have set my 12 month target price for ENS based upon a $55 price for ENB
1) Leverage factor
* Assume ENB share price increases by $6 from its current price to meet the $55 target price
* As ENB goes up by $1, the NAV for the ENS Unit goes up by $0.44
* A $6 increase in ENB increases the ENS NAV by $2.64 ($6 x 0.44)
* With ENB at $55, the target NAV for ENS would be $14.13 ($11.49 today plus $2.64)
* However, we need to deduct $0.0135 per week ($0.70 per year) from the NAV to cover the Pref divi so the target NAV would be $13.43 ($14.13 - $0.70).
*2) Premium to NAV factor
* Let's assume the Premium to the NAV will move back up to 15% at some point as investors recognize that ENB is undervalued and ENS offers a leverage play on the expected increase in the ENB share price (the analysts have already figured it out)
* At a 15% Premium to the NAV for ENS and a 12 month target price of $55 for ENB, I put a 12 month target price for ENS at $15.44 ($13.43 x 1.15)
Analysts create 12 month target prices based upon mathematical models with the assumption that the expectations of today will prevail a year from now. The old saying "Man plans, God laughs" has a way of making us all humble.