Wednesday, October 12, 2016

Enbridge Income Fund Holdings Inc.

Sound bite for Twitter and StockTwits is: Getting expensive. It is only showing as expensive using the dividend yield. I tend to like this test because it uses known values of dividends paid and stock price. See my spreadsheet on Enbridge Income Fund Holdings Inc.

I do not own this stock of Enbridge Income Fund Holdings Inc. (TSX-ENF, OTC-EBGUF). I have followed this stock for some time but I have not owned it. I do own Enbridge Inc. (TSX-ENB, NYSE-ENB). You would not want to invest in both this stock and Enbridge Inc. as Enbridge Inc. is invested in the fund this stock is invested in.

What I hate about reviewing this stock is that I have to fight my way through their accounting. You cannot just look at the accounting for this stock, but you must also look at the Enbridge Income Fund to get the whole picture.

When accounting gets complicated, I do not want to invest. It is too easy to make a mistake in my analysis. It is too easy to miss some problem that would affect the viability of this stock. I would not personally invest in this stock. To me the first rule of investing is that you do not invest in what you do not understand.

It would also seem that I am not the only one confused with the accounting. The estimates given by analysts for ENF's income are really the Revenue for the Enbridge Fund (ENBIF). The other thing is that this stock's accounting is using IFRS accounting rules and the Fund is using USGAAP accounting rules. They seem to want to make things difficult. Problem with different account rules is that values are not determined in the same manner. For example, Net Income might be calculated differently.

The dividends are good with low growth. The current dividend is 5.57% based on a stock price of $33.49 and dividends of $1.87. The growth over the past 5 and 10 years is at 6.5% and 5.7% per year. The Dividend Payout Ratios are rather high. The DPR for EPS for 2015 is at 86% and for CFPS is at 111%. (Also it is not a good sign when the EPS is higher than the CFPS. This is a negative.)

The underlying fund's shares have grown a lot, especially over the past few years. The Outstanding shares have grown by 40.7% and 18.6% per year over the past 5 and 10 years. The growth in shares for this company is lower at 22.9% and 10.9% per year over the past 5 and 10 years. This means that the percentage this company owns in the Fund is lower than it used to be. (This is neither good nor bad by itself.)

One problem I see is that the Revenue of the underlying fund is not growing. The Revenue has declined by 1.9% and grown by 1.8% over the past 5 and 10 years. However, the Revenue per Share has declined by 30.3% and 14.2% per year over the past 5 and 10 years.

The income of this company has grown over the past 5 years and the underlying fund has grown over the past 5 years and 10 years. The Net Income for the underlying fund has grown by 57% and 23% per year over the past 5 and 10 years. However, without Revenue growth I do not see how this can continue. However, analysts expect a sharp rise in Revenue from $298M to $4,246M in 2006. The second quarterly report seems to support this.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.52, 15.81 and 17.10. The corresponding 10 year values are 14.59, 17.23 and 20.24. The historical values are 14.84, 19.31 and 23.96. The current P/E Ratio is 16.50 based on a stock price of $33.49 and 2016 EPS estimate of $2.03. This stock price testing suggests that the stock price is reasonable and around the median.

I get a Graham price of $37.77. The 10 year low, median and high median Price/Graham Price Ratios are 0.79, 0.93 and 1.12. The current P/GP Ratio is 0.89 based on a stock price of $33.49. This stock price testing suggests that the stock price is reasonable and below the median.

The 10 year median Price/Book Value per Share Ratio is 1.17. The current P/B Ratio is 1.07 a values some 8.5% lower based on BVPS of $31.23 and a stock price of $33.49. This stock price testing suggests that the stock price is reasonable and below the median.

The historical median dividend yield is 6.99%. The current dividend yield is 5.57% based on a stock price of $33.49 and dividends of $1.87. The current dividend yield is some 20.1% lower than the current dividend yield. This stock price testing suggests that the stock price is getting expensive. I like this test best here because there is no estimating or accounting that may not tell the whole story involved. This test just deals with what dividends are paid and the current stock price only. It is just inside the expensive range because in this testing a stock is expensive if the current dividend yield is 20% lower than the historical median dividend yield.

When I look at analysts' recommendations I find Buy and Hold recommendations. There is one more Hold recommendation than buy (7 to 6). The consensus recommendations would be a Hold. The 12 months stock price is $35.46. This implies a total return of 11.45% with 5.88% from capital gains and 5.57% from dividends.

Why the increase in Revenue? On September 1, 2015, Enbridge Income Partners LP (EIPLP) acquired 100% interests in entities holding certain Canadian liquids pipelines, storage and renewable energy assets from Enbridge Inc. (Enbridge) and certain of its subsidiaries for aggregate consideration of $30.4 billion plus incentive distribution and performance rights, less working capital adjustments (the 2015 Transaction).

The 2015 Transaction resulted in changes to the Fund's method of accounting for its investments in Enbridge Commercial Trust (ECT) and EIPLP from consolidation accounting to equity method accounting due to certain ownership and governance changes. These changes were applied prospectively from September 1, 2015, the closing date of the 2015 Transaction. The results of operations prior to September 1, 2015 were accounted for on a consolidated basis.

Doug Wharley on Cerbat Gem talks about TD Securities affirming their buy rating and what other analysts are saying.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here. Joseph Solitro of Motley Fool likes this stock because its business model is that 99% of its cash flow is underpinned by long-term commercial agreements with creditworthy counterparties and it has a high dividend yield. See what analysts are saying at Stock Chase .

The last stock I wrote about was about was Linamar Corporation (TSX-LNR, OTC-LIMAF)... learn more . The next stock I will write about will be HNZ Group Inc. (TSX-HNZ, OTC- CDHPF)... learn more on Friday, October 14, 2016 around 5 pm. Tomorrow on my other blog I will write about Money Show 2016 - Benjamin Tal... learn more on Thursday, October 13, 2016 around 5 pm.

Enbridge Income Fund Holdings Inc., through its investment in Enbridge Income Fund, holds energy infrastructure assets Its web site is here Enbridge Income Fund Holdings Inc..

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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