EUR 850.00 For Business Accounts Only

Morningstar | Enbridge Looks to Advance Its Mainline Priority Access

Enbridge is an energy distribution and transportation company in the United States and Canada. It operates crude and natural gas pipelines, including the Canadian Mainline system. It also owns and operates Canada's largest natural gas distribution company. Enbridge is positioned to benefit from growing oil sands supply dynamics with its Mainline system and regional oil sands pipelines. The regulated Mainline system generates attractive tolls and represents approximately 70% of Canada’s pipeline takeaway capacity. The system offers refinery access to various markets, adding to the network’s attractiveness. The company also operates regional pipelines that tie directly into the Mainline. Each of these pipelines originates from existing oil sands projects and is underpinned by long-term contracts. Growth projects possess the same economics, positioning the company to benefit from the growing supply. While crude pipelines are Enbridge’s bread and butter, the company operates a diverse energy portfolio. Gas distribution operations benefit from regulated returns and provide the company with reliable cash flows. Enbridge also operates natural gas pipelines and processing assets that supplement its crude pipeline network. Future natural gas pipeline projects benefit from long-term contracts that are tied into emerging projects.The company intends to increase its annual dividend at 10% in 2020 and has maintained a three-year trailing average distributable cash coverage ratio of approximately 1.7 times the dividend over the past three years. Overall, Enbridge is in a strong position to benefit from the growing oil sands supply, which we expect to outstrip pipeline takeaway capacity in the near term. We expect the Line 3 Replacement to help; we project it to be in service by 2020 and fuel tremendous growth for the company. We believe the stock is deeply undervalued based on the company's vast growth portfolio, highlighted by the lucrative natural gas projects associated with the Spectra acquisition and the Line 3 Replacement. The recent market sell-off serves as a tremendous buying opportunity for long-term investors.