TD's Take Event
On September 7, 2021 ENB announced that it had entered a definitive
agreement to acquire Moda Midstream Operating, LLC, ("Moda") a liquids and
terminaling company backed by EnCap Flatrock Midstream for US$3.0Bn in all-cash
consideration.
Impact: POSITIVE
Bolstering ENB Crude Oil Export Strategy: Over the past several years, ENB has
been increasing its presence in the U.S. Gulf Coast. The acquisition of the Moda
assets is expected to add meaningful export capacity to serve global demand as well
as significantly advance connectivity to low-cost, long life reserves in the Permian
and Eagle Ford to the company's network.
Blue-chip Platform: ENB indicated that the Moda assets have strong commercial
underpinning that will add incremental low risk cash flows for the company. Currently
~90% of asset revenue is being supported by long-term contracts. Additionally,
management indicated they have identified over US$1.0Bn embedded low capital
organic growth opportunities which include further expansions of Gulf Coast export
and storage capacity.
Immediately Accretive to EPS and DCF: Management valued the transaction at
~8.0x forward EBITDA which we view as attractive value given the strong commercial
nature of the assets. ENB management expects the transaction to be immediately
accretive to EPS and DCF/share
Transaction Details: The acquisition has been approved by both Enbridge and
Moda boards and is expected to close in Q4/21 subject to certain regulatory
approvals.
Target Price: We have updated our financial forecasts to reflect this acquisition,
which we calculate is just under two and three percent accretive to EPS and free
cash flow respectively. As a result, our target price increases a dollar to $55.00.
TD Investment Conclusion
This acquisition will forward ENB's U.S. Gulf Coast and export strategy, in our view,
and bolster our belief that ENB's resilient business model and long-life assets warrant
a premium valuation. Over the long term, we expect ENB to continue to have a
strong competitive incumbency due to its geographic footprint, scale, connectivity
and diversification, and we believe that this positions it to play a role in North
America's contracted and regulated energy infrastructure evolution to support global
long-term climate-change goals and continued energy demand.
Recommendation: BUY
Risk: LOW
12-Month Target Price: C$55.00
Prior: C$54.00
12-Month Dividend (Est.): C$3.34
12-Month Total Return: 15.5%