Morningstar | Spectra Unitholders Face Lower Cash Payments in 2019, but Enbridge Growth Prospects Solid
We are reaffirming our $52 per unit fair value estimate for Spectra Energy Partners as the company moves toward closing its consolidation with parent company Enbridge on Dec. 17. We are reaffirming our wide moat and stable moat trend ratings for Spectra and Enbridge.Our fair value estimate continues to be based on Enbridge's proposed all-stock acquisition at a 1.111 unit exchange ratio and our CAD 62 per share fair value estimate for Enbridge. The market is valuing Spectra in line with the implied acquisition price as of Dec. 10.
The most immediate impact on Spectra unitholders will be a likely 24% cut in the cash they will receive from Enbridge in 2019 after the Enbridge board declared a CAD 0.738 per share first-quarter dividend, or CAD 2.95 per share annualized. This means Spectra unitholders are set to receive an equivalent $2.45 per unit based on the consolidation unit exchange ratio and the current CAD-USD currency exchange rate. We had forecast Spectra's total distribution in 2019 would total $3.23 per unit, a 6.6% annualized growth rate.
Enbridge management also committed to a 10% increase in the company's 2020 dividend, higher than the 6% distribution growth we expected for Spectra as a standalone entity. We expect Enbridge to easily meet that dividend growth target while maintaining healthy distributable cash flow.
Enbridge management had suggested earlier this year that an unfavorable rate ruling from the Federal Energy Regulatory Commission could have led to a distribution cut for Spectra, but we don't think that is likely based on subsequent developments and discussions. We think Enbridge's long-run dividend growth will fall to 2% beyond 2020, lower than our long-term distribution growth estimate for Spectra standalone.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.