Enbridge Inc. Update BUy Target Price $50

ENB : TSX : C$42.44
Target: C$50.00

Enbridge operates the world’s longest crude oil and liquids pipeline system. The company owns and operates Enbridge Pipelines Inc., a variety of affiliated pipelines in Canada, and has a 23% interest in Enbridge Energy Partners LP and a 67.8% interest in Enbridge Income Fund.
All amounts in C$ unless otherwise noted.

Infrastructure — Pipelines
Investment recommendation
Enbridge hosted its 15th annual Enbridge Day, once again highlighting the company’s dedication to the safety and integrity of operations, the execution of its committed growth projects, and delivering on incremental growth initiatives to enable the earnings, cash flow, and dividend growth profile to extend into the second half of the decade. In 2013, the company expects to place into service about $5 billion of projects ($4 billion already placed into service), with another $9 billion slated for completion in 2014. Many of the projects will increase liquids pipeline capacity and generate increased volumes on the Canadian Mainline (among other pipelines) where earnings growth is fueled by volume throughput under the Competitive Tolling Settlement. The company now has ~$26 billion of commercially secured growth projects which are expected to be placed into service over the 2013 to 2017 period. In addition to the commercially secured portfolio of projects, Enbridge has $10 billion of risked opportunities that are unsecured, which are included in the longer term financing plan and earnings outlook (beyond 2017).
With the secured project portfolio currently before them, management expects the company’s EPS growth rate to average 10-12% and has extended the growth horizon by one year through 2017 (previously through 2016) with dividend growth commensurate with EPS growth and potentially higher beyond 2017. Note that about $14.3 billion of the projects have an upward sloping return profile, implying higher returns in later years. As a result, management is comfortable that the potential $10 billion of unsecured risked projects and the tilted returns from more than half of its secured projects will provide support to extend the company’s growth profile beyond 2017 at the 10-12% rate. Enbridge has a very visible and attractive growth outlook with a management team that has proven itself by meeting targeted in-service dates at or below budget. We believe the strong EPS, CFPS, and dividend growth profile combined with the stable and proven business model is compelling, particularly in a rising interest rate environment. We maintain our BUY rating and 12-month C$50.00 target price.


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