Enbridge: A discounted valuation

While other players in our MLP (master limited partnership) coverage increase their cash distribution, Enbridge Energy Partners L.P. (EEP) still lags behind. In the third quarter, Enbridge retained its cash distribution, while Enterprise Products Partners L.P. (EPD) and Kinder Morgan Energy Partners L.P. (KMP) have increased their quarterly distribution by 5.7% and 3% year-over-year, respectively. 

On a distribution yield basis, Enbridge common units are currently trading at a discount to the peer pipeline MLP group average (higher yield = lower value). This represents a 369 basis points (bps) spread over the 10-year Treasury bond, compared to the peer group’s average spread of 358 bps. The discount reflects the partnership’s weak distribution-growth prospects. 

However, with the partnership’s $6.3 billion organic growth program (2006–2010) largely completed, it only has limited outstanding financing requirements through 2010. Additionally, the expansion and diversification of the partnership’s asset base over the past few years has created opportunities for internal growth projects, in our view. These are enabling the partnership to underpin stable cash flows going forward.

Read the full analyst report on EEP

Read the full analyst report on EPD

Read the full analyst report on KMP