10:11 AM EST, 11/18/2021 (MT Newswires) -- RBC Capital Markets noted Thursday the possible outcomes of the Canada Energy Regulator's decision on Enbridge Inc. (ENB.TO)'s Mainline contracting proposal to be released later this month, and how it may impact the company.
RBC said that while a clean approval by the CER would be the best outcome, Enbridge still has paths to realize a relatively modest erosion in EBITDA while reducing its overall risk, particularly as it relates to the market's concerns about future volumes stemming from the energy transition.
RBC expects the company's stock to initially react based on sentiment. If the CER approves the contracting proposal with no material changes, Enbridge's shares are expected to react positively. A rejection by the CER would likely result in a negative reaction in the share price, which may be unwarranted and instead could present a buying opportunity.
RBC also noted the potential for a grey zone where the CER approves contracting with material changes or conditions, and this scenario would result in share price weakness given the uncertainty.
A CER approval would be a material positive catalyst largely due to risk reduction, as long-term contracting would provide visibility for cash flows and alleviate concerns about declining volumes associated with the energy transition as well as TMX capacity.
A CER rejection or unacceptable conditions/changes would pave the way for settlement discussions. RBC said this would not necessarily be a material negative. RBC also said cost-of-service is possible but believes this would not be a good outcome for Enbridge or shippers.