Morningstar | Spectra Energy Partners Consolidation Moving Forward, Driving Valuation
We are reaffirming our $48 fair value estimate and wide moat and stable moat trend ratings after Spectra Energy Partners reported $574 million of ongoing EBITDA and $402 million of distributable cash flow in the second quarter, both up from the same quarter last year. Results are on track to meet our full-year estimates.Our fair value estimate continues to be based on Enbridge's proposed all-stock acquisition at a 1.0123 unit-exchange ratio and our $49 per share fair value estimate for Enbridge. The market is valuing SEP at a 3% premium to the implied acquisition price as of Aug. 6, suggesting some investors think Enbridge will raise its bid. We think that's unlikely given Enbridge's 80% ownership stake.
On a standalone basis, we expect an acceleration of earnings and cash flow growth in the second half of the year as major projects such as NEXUS and Atlantic Bridge go into service.
SEP raised its distribution $0.0125 per share in the second quarter, up 7% from the second quarter of 2017, to $3.055 per unit annualized, representing the 43rd consecutive quarterly distribution increase. We expect SEP will pay one more quarterly distribution with a similar quarter-over-quarter increase before Enbridge closes its acquisition.
Spectra Energy Partners is a partnership holding company. Through its subsidiaries and equity affiliates, the company is engaged in the transmission, storage and gathering of natural gas, and the transportation and storage of crude oil, through interstate pipeline systems in the U.S. and Canada. The company's operations and activities are managed by its general partner, Spectra Energy Partners (DE) GP, LP. The company manages its business in two reportable segments: U.S. Transmission, which provides transmission, storage, and gathering of natural gas in northeastern and southeastern U.S.; and Liquids, which provides transportation and storage of crude oil in central U.S. and Canada.
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