EnbriDgE rEbounDs aftEr DEbt woEs
Enbridge Inc. finally appears to be in investors’ good books again, after approval for a major pipeline project and a large asset sale dramatically improved sentiment toward the stock.
While shares of the Calgarybased energy utility have been trending downward since soon after its $37-billion merger with Spectra Energy Corp. was announced in September 2016, they’ve rallied more than 11 per cent in the past week or so.
Last week, regulators in Minnesota gave Enbridge the go-ahead to build a controversial oil pipeline, and on Wednesday the company announced the sale of its Canadian natural gas gathering and processing business.
Long-term investors in what is now North America’s largest pipeline company, haven’t forgotten about the woes that contributed to what is still a 20-per-cent share price decline in the past three years. But are Enbridge’s worst days now behind it?
The most recent asset sale to Brookfield Instrastructure Partners LP raised $4.3 billion, and analysts seem to agree that Enbridge received a good value.
More importantly, the transaction brings Enbridge’s total asset sales in 2018 to approximately $7.5 billion. That’s more than double the company’s minimum $3-billion target for non-core asset sales this year, although it is part of a larger effort to potentially raise $10 billion in the medium term.
“The implied sale multiple is at the high end of our expectations and further advances the company ’s strategy to simplify,” said Ben Pham, an energy infrastructure analyst at BMO Capital Markets.
He believes these two most recent developments will improve Enbridge’s valuation, as the asset sales further advance the move to become a pure-play regulated pipeline and utility.
Chief executive Al Monaco promised to reduce the company ’s debt load after the Spectra deal closed, but Enbridge was hit by a downgrade at Moody’s in December 2017 on doubts about how long the strategy would take to execute.
Approval of Enbridge’s preferred route for the pipeline in Minnesota mitigates several potential risks, but Line 3 isn’t completely in the clear just yet because of opposition from several parties.
After the decision from Minnesota’s Public Utilities Commission was announced, Gov. Mark Dayton stated that it was not the final approval of the pipeline. “Rather, it only allows Enbridge to begin to apply for at least 29 required federal, state, and local permits,” Dayton said. “Those regulatory reviews, which address numerous issues not considered by the PUC, will take several months.”
The Fond du Lac Band of Lake Superior Chippewa opposes the ruling and is planning an appeal with a coalition of various other groups.
“In the current environment for building pipelines, we believe tail risks remain for Line 3 Replacement as opposition seeks to delay and/or stop construction at all steps in the prices,” said Jeremy Tonet, a J.P. Morgan analyst.
He does consider the approval an important step for the company, as is the simplification of its corporate structure through the taking in of subsidiaries.