Tuesday, July 10, 2012

Enbridge Income Fund Holdings

I do not own this stock (TSX-ENF). This company has reorganized and effectively changed from an income trust to a corporation. The problem is that they are mucking about with the accounting with this reorganization and there is not much in the way of continuity as far as I can see with the old accounting records. I hate this. It is hard to get a handle on just how the value of your stock is really changing.

Another thing is that the company is reporting an EPS of $1.33, but sites are saying that the EPS for 2011 was $0.78 or 0.98 or 1.03, (that is anything, but $1.33.) In any event they are saying something other than what the company is reporting of $1.33. If you divide the $37.33M earnings by current outstanding shares, you get an EPS of $0.95. If you divide the earnings by the average number of outstanding shares you get $1.15. This is the usual method of determining EPS. In my spreadsheet, I am assuming EPS is $1.15.

The dividends on this company have a 5 year median dividend yield of 8.62%. However, as with all companies changing from an income trust structure to a corporation structure, the dividend yield has come down and is currently at 5.49%. The actual dividends have not decreased, and in fact have increased with this structural change.

The growth in dividends over the years has been moderate with usually some increase except for 2010. The 5 and 10 year growth in dividends is at 4.59% and 4.34%. The most recent dividend increase, which occurred in 2011, was for 7.3%.

The 5 year Dividend Payout Ratios are 160% for earnings and 42.34% for cash flow. The DPRs for 2011 were 100.8% for earnings and 129.2% for Cash flow. (If I look at the cash flow without non-cash items, the DPR is still very high at 121.8%.)

This is also pointing to the fact that the cash flow per share is higher than the EPS and is not considered to be a good sign. The cash flow fell steeply with the structural change. However, if you look at cash flow for the fund, it went up significantly.

Some good news is that the total return on this stock is very good over the past 5 and 10 years. The total return is 15.75% and 15.43% per year, respectively. The dividend portion of this total return is 6.97% and 7.36% per year over the past 5 and 10 years. The capital gain portion is 8.77% and 8.07% per year over the past 5 and 10 years. Dividends make up 44.28% and 47.72% of the total return.

Going forward, you would expect that the total return will come down by at least a couple of percentage points as the dividend yield is coming down. I also note that the 12 month consensus stock price is below what the stock price is today.

Revenue per share is up 6.9% and 13.3% per year over the past 5 and 10 years. Earnings per Share are up just 2.4% per year over the past 5 years. This is because I have used $1.15 for EPS rather than the report $1.33 EPS figures. EPS is up well at 17.8% per year over the past 10 years.

My spreadsheet shows that cash flow per share is down considerably. This is because, according to the statements after the restructuring cash flow is down considerably. However, there does seem to be a lack of continuity in the accounting records after the restructuring.

Also, after the restructuring, book value is up considerably. However, if you look at the Enbridge Fund accounting, the book value was very low at the end of 2011 and is negative in the first quarter of 2012.

If you look at the accounting for Enbridge Income Fund Holdings, the debt ratios are very good. It shows the Liquidity Ratio currently at 2.12 and the Debt Ratio 40.54. However, if you look at the Enbridge Income Fund, these ratios are 1.17 and 1.21. Utilities tend to have low debt ratios as they are companies with high debt loads. Hard to know what to make of the ones for this company compared to the income fund.

The Return on Equity for 2011 is rather low at 4.7%. The ROE has always been quite low on this stock. The ROE on comprehensive income for 2011 is rather good at 12.2%. It is unusual for the ROE on the comprehensive income to be so much higher than the ROE on the net income.

This is rather a difficult stock to analyze. Ownership is confusing. It would appear that Enbridge Inc. (TSX-ENB) owns shares in this company as well as units in the Enbridge Income Fund. Sometimes such research points out what not to be as well as what to buy.

I think that a good rule to follow is not to invest in things you do not understand. Therefore I personally would not buy because I find the accounting and ownership rather confusing. I do own Enbridge Inc. (TSX-ENB). I never had any problem understanding the statements from Enbridge Inc. From going through these statements could Enbridge Inc. be indulging in off balance sheet accounting? I do not know the answer to this question.

Tomorrow, I will look at what my spreadsheet says about the current price of this stock and what the analysts say.

Enbridge Income Fund Holdings Inc. is a publicly traded corporation. The Company, through its investment in Enbridge Income Fund, holds high quality, low risk energy infrastructure assets. The Fund's assets include a 50% interest in the Canadian segment of the Alliance Pipeline, a 100% interest in the various pipelines comprising the Saskatchewan System, and interests in more than 400 megawatts of renewable and alternative power generation capacity. Its web site is here Enbridge Income. See my spreadsheet at enf.htm.

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. See my website for stocks followed and investment notes. Follow me on twitter.

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