From RBC
May 5, 2023
Enbridge Inc.
Quick Take: "Strong start to 2023"; appears to be net tailwinds to 2023 guidance
TSX: ENB | CAD 53.18 | Outperform | Price Target CAD 65.00
Sentiment: Neutral
Our take
Following yesterday's announcement of the Mainline settlement in principle, which we view positively by removing uncertainty
for Enbridge's largest asset, we view the Q1/23 results as supportive of our positive view on the stock. Overall, core results were
in line with our expectations, although we note that it appears that there are greater tailwinds than headwinds for 2023.
Details
"Strong start to 2023". In Q1/23, adjusted EBITDA was $4.468 billion versus our forecast of $4.328 billion and consensus of $4.292
billion (13 estimates; range of $4.230-4.350 billion). EPS in Q1/23 was $0.85 compared to our estimate of $0.85, while DCF/share
was $1.57 versus our forecast of $1.50.
• Liquids Pipelines: EBITDA was $2.354 billion versus our forecast of $2.369 billion with Mainline volumes (ex-Gretna) of 3.120
million b/d compared to our forecast of 3.050 million b/d;
• Gas Transmission & Midstream: EBITDA was $1.189 billion compared to our estimate of $1.120 billion;
• Gas Distribution & Storage: EBITDA was $716 million versus our forecast of $711 million;
• Renewable Power: EBITDA came in at $139 million, which compares to our estimate of $164 million;
• Energy Services: EBITDA was ($6) million versus our estimate of ($50) million; and
• Eliminations & Other: EBITDA was $76 million compared to our forecast of $15 million.
Re-affirms 2023 guidance, although there appears to be net tailwinds. Enbridge reiterated its 2023 EBITDA guidance of $15.9-16.5
billion (we were at $16.371 billion heading into the quarter) with 2023 DCF/share guidance of $5.25-5.65 (we were at $5.49 heading
into the quarter). In the Q1/23 conference call presentation, Enbridge depicted greater tailwinds versus headwinds, specifically
citing "strong operating performance and system utilization" as well as a stronger U.S. dollar as being tailwinds, which it appears
to expect to be partially offset by warm weather, higher interest rates and reduced opportunities for Energy Services due to
commodity market backwardation.
We expect to hear more on the Mainline settlement including how it sets up future projects such as a Flanagan South expansion.
Yesterday, Enbridge announced a settlement in principle on the Mainline (please click here). On the conference call, we expect to
hear more details on the settlement, as well as the company's vision for how the settlement may pave the way for future initiatives
including a Flanagan South expansion (plans to launch a binding open season) as well as Line 5 projects.
Capital allocation messaging is good with a dynamic policy that resulted in a modest amount of share buybacks in April to take
advantage of the share price weakness. Enbridge ended Q1/23 with debt/EBITDA of 4.6x, which is in the bottom-half of its target
range, providing flexibility to use the balance sheet to help fund new initiatives and/or complete tuck-in acquisitions. While the
company previously noted the potential for share buybacks in 2023, execution under the normal course issuer bid was not part
of the base plan; however, capitalizing on the weak share price in April, Enbridge repurchased a modest amount of stock (i.e.,
roughly 0.5 million shares for $25 million).