Overview of the Deal

As many investors may have heard, Enbridge (ENB) is set to buy three utilities from Dominion Energy for a total consideration of $14 billion, including debt. ENB is buying East Ohio Gas, Questar Gas, and Public Service Co of North Carolina for $9.4 billion in cash and $4.6 billion of assumed debt.

This is a monumental deal for the company and for the oil and gas industry, as it now makes Enbridge the largest natural gas provider in North America. The scale of this acquisition is large, and it will effectively double Enbridge’s gas distribution business. The deal is expected to close in 2024.

The company decided to proceed with the acquisitions as they represent an opportunity that does not come around too often and allows Enbridge to benefit as natural gas remains a transition fuel while companies around the global try to reduce oil use. 

Enbridge's Market Expansion

This is a big deal for ENB as it will now supply over nine billion cubic feet per day of gas to about seven million customers. The company will now be providing gas services to Ohio, Utah, Wyoming, and North Carolina. In these states, revenue from utility bills is expected to grow faster than the national average.

Of significant importance, this deal adds diversifying benefits for ENB, as it shifts from 99% of its gas distribution being centered in Ontario to a healthier geographic mix between Ontario, Quebec, Ohio, Utah/Wyoming/Idaho, and North Carolina.

Source: Enbridge Presentation

Not only is the geographic mix of gas distribution becoming more diversified, but the company’s overall operating segments are becoming more diversified. ENB will shift from gas distribution representing 12% of its total sales to a future state of 22% of total sales. 

We feel that this only further strengthens the company’s moat, its durability, and sets the stage for the company to take advantage of future increased demand for natural gas. 

Source: 5i Research, Enbridge Presentation

Key Fundamentals of the Company

We believe that for owners of ENB stock, this cements ENB’s capabilities in gaining new market share, expanding its services, and improving its cash flow profile. These acquisitions will help to diversify its business mix, improve top-line growth, maintain balance sheet strength, and fortify its long-term dividend growth profile.

Looking at some of ENB’s key fundamentals, we see solid expansion in its EBITDA over the past 10 years, a healthy and stabilized net profit margin profile, at 8.7% currently, and a rapidly expanding free cash flow yield. These strong fundamentals further corroborate our views that this deal is accretive to shareholders. We liked Enbridge before the deal as a strong income stock, and this deal further solidified itself as a stronger company with more assets and more cash flow. 

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Twitter: @5iChris