Did Enbridge's 2023 earnings really improve significantly over 2022?

On a GAAP basis, yes: earnings rose to C$5.8B (C$2.84/share) from C$2.6B (C$1.28/share). However, the 2022 comparison included a C$2.5B non-cash goodwill impairment on the Gas Transmission unit, so the improvement is largely non-recurring. On an adjusted basis, earnings were essentially flat at C$5.7B (C$2.79 vs. C$2.81 per share), and the per-share figure declined slightly due to the 2023 equity issuance.

Is the dividend safe, and how much is it growing?

The dividend was raised 3.1% to C$0.915 per quarter (C$3.66 annualized), marking 29 consecutive annual increases. Management reaffirmed 2024 DCF guidance, and 2023 DCF of C$11.3B provides coverage of the common dividend. Future increases depend on continued DCF growth and the successful closing and integration of the gas utility acquisitions.

How will Enbridge fund the C$19.1B gas utility acquisitions from Dominion?

The C$12.8B (US$9.4B) cash portion is being funded through pre-funding of about C$10B to date, including roughly C$4.6B of common equity issued in 2023, US$2.0B and C$1.0B of 60-year hybrid subordinated notes, and proceeds from the Alliance/Aux Sable sale (C$3.1B, partly used for the acquisitions and partly for debt reduction). The remainder can be funded through senior notes, capital recycling, potential reinstatement of the DRIP, or At-The-Market equity issuance. The assumed US$4.6B of debt is in addition to the cash consideration.

What is the main regulatory risk to Enbridge's gas distribution business?

The OEB's Phase 1 decision on Enbridge Gas's incentive regulation application requires a C$250M reduction to the 2024 capital plan (escalating to C$250M annually), requires new small-volume customers to pay full connection costs upfront from 2025, and raises equity thickness from 36% to 38%. Enbridge has appealed to the Ontario Divisional Court and requested an OEB review. Management expects the decision to be immaterial to 2024 guidance, but the ultimate outcome, including possible provincial legislative action, is uncertain.

Why is leverage above target but not a concern?

Year-end Debt-to-EBITDA was 4.1x, below the 4.5x–5.0x target range. This reflects the company's deliberate equity and hybrid pre-funding of the acquisitions, which raised cash and equity ahead of the closing. Management expects leverage to return to target as acquisitions close and asset sale and debt-reduction proceeds are applied, and the hybrid notes receive partial equity credit from rating agencies.

ENBRIDGE INC 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 9, 2024. Cited figures are marked; the original filing is the authoritative source.

Enbridge Inc. (ENB) reported record full-year 2023 results in its February 9, 2024 8-K press release (Exhibit 99.1).

GAAP earnings attributable to common shareholders rose to C$5.8 billion^a, or C$2.84 per share, versus C$2.6 billion (C$1.28 per share) in 2022, though this comparison is flattered by a C$2.5 billion non-cash goodwill impairment taken in 2022. Adjusted earnings were essentially flat at C$5.7 billion (C$2.79 per share, down from C$2.81), while adjusted EBITDA grew 6% to C$16.5 billion and distributable cash flow (DCF) rose to C$11.3 billion. The company achieved its financial guidance for the 18th consecutive year, reaffirmed 2024 EBITDA and DCF guidance (excluding the pending gas utility acquisitions), and raised the 2024 quarterly dividend 3.1% to C$0.915 per share (C$3.66 annualized), its 29th consecutive annual increase.

The most important investor items relate to portfolio repositioning and financing. Enbridge agreed to sell its Alliance Pipeline stake and Aux Sable interest to Pembina for C$3.1 billion^b, and has pre-funded roughly C$10 billion of the C$12.8 billion (US$9.4 billion) cash consideration for the Dominion gas utility acquisitions through equity issuance, hybrid notes and asset sale proceeds. The company reports about 85% of the financing is secured.

Year-end Debt-to-EBITDA was 4.1x^c, below the 4.5x to 5.0x target range, which management attributes to the equity pre-funding. Both the Dominion acquisitions and the Alliance/Aux Sable sale are expected to close in 2024, and the acquisitions received final CFIUS clearance on January 11, 2024. Key risks include the Ontario Energy Board's Phase 1 decision on Enbridge Gas's rebasing application, which reduces the 2024 capital plan and changes depreciation and equity thickness treatment.

Enbridge has filed both a Divisional Court appeal and a motion for OEB review, and the outcome is uncertain, although management expects the decision to be immaterial to 2024 guidance. The Mainline Tolling Settlement, filed with the Canada Energy Regulator, received only supportive comments and provides a settlement term through 2028. Overall, the filing presents a company that is executing its growth strategy while managing leverage and regulatory risk.

02—Key points

Key Highlights

Record 2023 results: GAAP earnings of C$5.8B (C$2.84/share) vs. C$2.6B in 2022; adjusted EBITDA up 6% to C$16.5B; DCF up C$0.3B to C$11.3B.
Adjusted earnings were roughly flat at C$5.7B (C$2.79/share vs. C$2.81), reflecting higher interest expense and depreciation and the equity issuance dilution.
Dividend increased 3.1% to C$0.915 per quarter (C$3.66 annualized) from March 1, 2024, the 29th consecutive annual increase.
Reaffirmed 2024 EBITDA and DCF guidance, which excludes the pending Dominion gas utility acquisitions (C$19.1B aggregate value, expected to close during 2024).
Asset sale of Alliance Pipeline (50%) and Aux Sable (42.7% interest) to Pembina for C$3.1B, at roughly 11x projected 2024 EBITDA for Alliance and about 7x for Aux Sable; closing expected in 1H 2024.
Financing progress: about C$10B of the C$12.8B cash consideration pre-funded, with about 85% of total financing secured; year-end Debt-to-EBITDA of 4.1x, below the 4.5x–5.0x target range.
Regulatory watch items: Ontario Energy Board Phase 1 decision on Enbridge Gas rebasing (appeal and OEB review motion filed; outcome uncertain) and the Mainline Tolling Settlement application pending before the CER.

03—Questions

Frequently Asked Questions

Did Enbridge's 2023 earnings really improve significantly over 2022?
On a GAAP basis, yes: earnings rose to C$5.8B (C$2.84/share) from C$2.6B (C$1.28/share). However, the 2022 comparison included a C$2.5B non-cash goodwill impairment on the Gas Transmission unit, so the improvement is largely non-recurring. On an adjusted basis, earnings were essentially flat at C$5.7B (C$2.79 vs. C$2.81 per share), and the per-share figure declined slightly due to the 2023 equity issuance.
Is the dividend safe, and how much is it growing?
The dividend was raised 3.1% to C$0.915 per quarter (C$3.66 annualized), marking 29 consecutive annual increases. Management reaffirmed 2024 DCF guidance, and 2023 DCF of C$11.3B provides coverage of the common dividend. Future increases depend on continued DCF growth and the successful closing and integration of the gas utility acquisitions.
How will Enbridge fund the C$19.1B gas utility acquisitions from Dominion?
The C$12.8B (US$9.4B) cash portion is being funded through pre-funding of about C$10B to date, including roughly C$4.6B of common equity issued in 2023, US$2.0B and C$1.0B of 60-year hybrid subordinated notes, and proceeds from the Alliance/Aux Sable sale (C$3.1B, partly used for the acquisitions and partly for debt reduction). The remainder can be funded through senior notes, capital recycling, potential reinstatement of the DRIP, or At-The-Market equity issuance. The assumed US$4.6B of debt is in addition to the cash consideration.
What is the main regulatory risk to Enbridge's gas distribution business?
The OEB's Phase 1 decision on Enbridge Gas's incentive regulation application requires a C$250M reduction to the 2024 capital plan (escalating to C$250M annually), requires new small-volume customers to pay full connection costs upfront from 2025, and raises equity thickness from 36% to 38%. Enbridge has appealed to the Ontario Divisional Court and requested an OEB review. Management expects the decision to be immaterial to 2024 guidance, but the ultimate outcome, including possible provincial legislative action, is uncertain.
Why is leverage above target but not a concern?
Year-end Debt-to-EBITDA was 4.1x, below the 4.5x–5.0x target range. This reflects the company's deliberate equity and hybrid pre-funding of the acquisitions, which raised cash and equity ahead of the closing. Management expects leverage to return to target as acquisitions close and asset sale and debt-reduction proceeds are applied, and the hybrid notes receive partial equity credit from rating agencies.

04—Continue

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