Recommendation

It is our opinion that the market is currently discounting the future value of Enbridge’s expanding cash flows through their organic growth projects. Enbridge is currently the largest energy infrastructure company in North America after its recently completed acquisition with Spectra Energy. Enbridge is showing strong capital allocation by choosing to focus on its core business segments while selling or monetizing its non-core assets. Management has set out this plan to deleverage and foster organic growth in their core segments. The company currently has 15+ growth projects secured that will be put into service at various times over the next 5 years, it is believed that the market is not taking this into the current share price. The diversification and focus on core businesses will allow Enbridge to grow steadily as its growth projects come into service, also supporting management’s decision to continually raise dividends at 10% a year. These factors come together to form a prime opportunity to buy a quality company with future growth with a reasonability large margin of safety. Enbridge is also a company that will certainly add stability to any portfolio with the current unstable markets.

Business Overview

 Enbridge is currently the largest energy infrastructure company in north America with a focus on a focus on three core segments. Enbridge is the largest energy infrastructure company in North America with the world’s longest crude oil and liquids transportation system. Also owns & operates Canada’s largest natural gas distribution company. Enbridge is relatively diversified with its core businesses being; liquids pipelines, gas transmission & midstream, gas distribution, green power & transmission.

Revenue Structure

Enbridge collects revenue under long-term contracts and agreements that allow the company to have predictable and reliable revenues. Enbridge operates in an interesting segment of the energy sector where its revenues aren’t affected largely buy commodity prices. The tolls that are collected by Enbridge are driven by the volume transported through their infrastructure. So, all though they aren’t directly affected by gas and oil prices, their customers can adjust the volume they transport through Enbridge monthly, the amount that customers ship through the company will vary slightly in affect to commodity prices. It appears that as the supply in oil and gas increases Enbridge will be in a perfect opportunity to harvest the growing demand for their various services.

Valuation

With a price target of $55 Enbridge is currently trading below its fair value creating a prime opportunity to own a strong and defensible company. With an above average dividend that will continue to grow at roughly 10% per year, as stated by the company. Although this isn’t a company that will blow your socks off with growth, it is a company anyone should own for its stability and low risk characteristics.

This is Jacob Mathon’s first report for thestockboys.com