Enbridge is leveraging the Ingleside Energy CenterEQUITY RESEARCH April 5, 2023 Company Update
ENBRIDGE INC. On The Road With Management
Our Conclusion Recent institutional investor meetings with Vern Yu, Executive Vice President, Corporate Development, CFO and President, New Technologies, support our investment thesis that Enbridge remains a low-risk pick for dividend and income investors, especially in the near term as 2023 discounted cash flow (DCF) per share guidance is almost entirely hedged for interest rates and F/X. Meetings focused on the ongoing Mainline negotiations, the recent blue ammonia project, and long-term growth prospects. We maintain our $63 DCF-based price target and reiterate our Outperformer rating.
Key Points Mainline Negotiations Update: Messaging on the Mainline toll negotiations was consistent with that during the Investor Relations (IR) Day, namely that incremental progress is being made towards an incentive tolling agreement. While the company remains prepared to file a cost-of-service agreement, we view this as increasingly unlikely and considered only if negotiations break down. In the meantime, the company continues to collect the toll under the expired tolling agreement on a refundable basis, while recording reserves based on an expected final toll level. We are comforted that the reserve has not changed, implying discussions remain consistent with expectations. Increased Growth Visibility: Recent project announcements are adding to growth visibility into the latter half of the decade. These include a new blue ammonia project and being selected [along with joint venture (JV) partners] to develop France’s largest offshore wind farm. We expect the company to continue focusing on existing conventional businesses and on low-carbon energy transition opportunities, including renewable power. Tuck-in acquisitions remain a capital-allocation option as buy multiples are converging with build multiples that are rising due to long permitting periods, but we are not expecting any step-out or transformative acquisitions.
Blue Ammonia Project: The new blue ammonia project is a positive addition to Enbridge’s energy transition initiatives and another example of how existing infrastructure can be a significant competitive advantage in securing energy transition projects. For this project, Enbridge is leveraging the Ingleside Energy Center, access to its pipeline network and a CCUS project being developed onsite. We expect the project’s returns to be akin to existing pipeline economics, with a commercial framework that has limited to no commodity or volume exposure.
Go Enbridge! ;-)