The logo of Calgary-based Enbridge, one of North America’s largest energy infrastructure companies, is displayed during the LNG 2023 energy trade show on July 12, 2023 in Vancouver, British Columbia, Canada. Reuters/Chris Helgren/File Photo Licensing rights granted
Sep 6 (Reuters) – Shares of Enbridge Inc (ENB.TO) fell nearly 7% on Wednesday to their lowest level in more than four years, as some analysts pegged the Canadian pipeline operator for $14 billion to buy three utilities. questioned the financial implications of the surprise bid. Dominion Energy (DN) is doubling down on its gas distribution business.
The move to acquire East Ohio Gas, Questar Gas and Public Service Company of North Carolina will make Enbridge the largest gas utility by volume in North America, with the units accounting for a little less than a quarter of the company’s total business mix.
The deal is seen as a bet on the future of natural gas in a regulated market as energy companies and consumers move toward a greener future by phasing out fossil fuels.
But some analysts were surprised by the deal’s timing, scale and impact on the company’s already strong balance sheet. Moody’s downgraded Enbridge’s outlook to negative late Tuesday.
“I think the market got a little cautious because it wasn’t in my bingo cards,” said Stephen Ellis, analyst at Morningstar. “Management had a realistic approach to allocating capital, so a smaller transaction (perhaps a deeper investment in Canadian LNG?) would have been more expected,” Ellis said.
Enbridge made the deal just a month after CEO Greg Abel told analysts the company looked at acquisition opportunities ‘across the board’.
In a note, Ellis described the acquisition as a “defensive move” and said Enbridge left unchanged its expectation for 5% annualized EBITDA growth over the medium term, despite the size of the deal, which suggests that the earnings contribution “will be driven by liquids.” But replacing the weak results.” side of the business.”
By late morning, Enbridge shares were down 5.5% at C$45.50, while the benchmark Canadian Stock Index was down 0.5%. Rival TC Energy was down 2.7%. Enbridge is selling new shares at a 7.2% discount on Tuesday to partially fund the transaction.
“While Enbridge paid a fair price, the high leverage and funding gap could act as an overhang,” analysts at Wells Fargo said in a note.
The note said the transaction deploys some of the company’s near-term balance sheet capacity and therefore the company will be even more selective in how it deploys remaining investment capacity.
In July, rival TC Energy (TRP.TO) said it would focus on transporting natural gas as it announced a split of the business into two listed companies, saying they would be more valuable separately.
Reporting by Mrinalika Roy in Bengaluru; Writing by Denny Thomas, Editing by Anil D’Silva, Alexandra Hudson
Our Standards: The Thomson Reuters Trust Principles.
Get Licensing RightsOpens new tab
Source: www.reuters.com
