Intrinsic value of Enbridge Inc. - ENB

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$56.64

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$56.64

 
Intrinsic value

$33.95

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ENB stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 92.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.27
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
Revenue, $m
  34,560
  36,219
  37,965
  39,801
  41,733
  43,765
  45,902
  48,148
  50,510
  52,992
  55,600
  58,341
  61,222
  64,248
  67,428
  70,769
  74,278
  77,964
  81,836
  85,904
  90,176
  94,662
  99,375
  104,324
  109,522
  114,980
  120,713
  126,733
  133,055
  139,694
  146,665
Variable operating expenses, $m
 
  6,845
  7,175
  7,521
  7,886
  8,270
  8,673
  9,097
  9,543
  10,011
  10,504
  11,013
  11,557
  12,128
  12,729
  13,359
  14,022
  14,718
  15,449
  16,216
  17,023
  17,870
  18,759
  19,694
  20,675
  21,705
  22,787
  23,924
  25,117
  26,371
  27,687
Fixed operating expenses, $m
 
  26,840
  27,511
  28,198
  28,903
  29,626
  30,367
  31,126
  31,904
  32,701
  33,519
  34,357
  35,216
  36,096
  36,999
  37,924
  38,872
  39,844
  40,840
  41,861
  42,907
  43,980
  45,079
  46,206
  47,361
  48,546
  49,759
  51,003
  52,278
  53,585
  54,925
Total operating expenses, $m
  31,979
  33,685
  34,686
  35,719
  36,789
  37,896
  39,040
  40,223
  41,447
  42,712
  44,023
  45,370
  46,773
  48,224
  49,728
  51,283
  52,894
  54,562
  56,289
  58,077
  59,930
  61,850
  63,838
  65,900
  68,036
  70,251
  72,546
  74,927
  77,395
  79,956
  82,612
Operating income, $m
  2,581
  2,534
  3,279
  4,082
  4,944
  5,870
  6,862
  7,926
  9,063
  10,279
  11,577
  12,971
  14,449
  16,024
  17,701
  19,486
  21,384
  23,403
  25,548
  27,827
  30,246
  32,813
  35,536
  38,424
  41,485
  44,729
  48,166
  51,806
  55,659
  59,738
  64,054
EBITDA, $m
  4,821
  4,889
  5,747
  6,669
  7,656
  8,714
  9,845
  11,053
  12,344
  13,720
  15,188
  16,751
  18,416
  20,187
  22,070
  24,071
  26,197
  28,455
  30,851
  33,393
  36,089
  38,947
  41,976
  45,184
  48,582
  52,180
  55,988
  60,018
  64,281
  68,790
  73,558
Interest expense (income), $m
  1,820
  1,696
  1,826
  1,961
  2,104
  2,253
  2,411
  2,577
  2,751
  2,934
  3,127
  3,329
  3,542
  3,765
  4,000
  4,246
  4,506
  4,778
  5,064
  5,364
  5,679
  6,011
  6,359
  6,724
  7,108
  7,511
  7,935
  8,380
  8,846
  9,337
  9,852
Earnings before tax, $m
  2,451
  838
  1,454
  2,121
  2,841
  3,616
  4,451
  5,349
  6,312
  7,345
  8,451
  9,642
  10,907
  12,258
  13,701
  15,239
  16,879
  18,625
  20,484
  22,463
  24,566
  26,802
  29,177
  31,700
  34,377
  37,218
  40,231
  43,426
  46,813
  50,401
  54,202
Tax expense, $m
  142
  226
  393
  573
  767
  976
  1,202
  1,444
  1,704
  1,983
  2,282
  2,603
  2,945
  3,310
  3,699
  4,115
  4,557
  5,029
  5,531
  6,065
  6,633
  7,237
  7,878
  8,559
  9,282
  10,049
  10,862
  11,725
  12,639
  13,608
  14,635
Net income, $m
  2,069
  612
  1,061
  1,548
  2,074
  2,640
  3,250
  3,905
  4,608
  5,362
  6,169
  7,039
  7,962
  8,949
  10,002
  11,125
  12,322
  13,596
  14,954
  16,398
  17,933
  19,565
  21,299
  23,141
  25,095
  27,169
  29,369
  31,701
  34,173
  36,793
  39,567

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,117
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  85,832
  87,697
  91,924
  96,371
  101,049
  105,969
  111,143
  116,582
  122,299
  128,309
  134,625
  141,262
  148,237
  155,565
  163,264
  171,352
  179,849
  188,775
  198,151
  207,999
  218,343
  229,207
  240,617
  252,601
  265,186
  278,403
  292,283
  306,859
  322,167
  338,241
  355,121
Adjusted assets (=assets-cash), $m
  83,715
  87,697
  91,924
  96,371
  101,049
  105,969
  111,143
  116,582
  122,299
  128,309
  134,625
  141,262
  148,237
  155,565
  163,264
  171,352
  179,849
  188,775
  198,151
  207,999
  218,343
  229,207
  240,617
  252,601
  265,186
  278,403
  292,283
  306,859
  322,167
  338,241
  355,121
Revenue / Adjusted assets
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
Average production assets, $m
  33,603
  35,205
  36,902
  38,687
  40,565
  42,540
  44,617
  46,800
  49,095
  51,508
  54,043
  56,708
  59,508
  62,449
  65,540
  68,787
  72,198
  75,781
  79,545
  83,498
  87,651
  92,012
  96,592
  101,403
  106,455
  111,761
  117,333
  123,184
  129,329
  135,782
  142,559
Working capital, $m
  -4,556
  -1,666
  -1,746
  -1,831
  -1,920
  -2,013
  -2,111
  -2,215
  -2,323
  -2,438
  -2,558
  -2,684
  -2,816
  -2,955
  -3,102
  -3,255
  -3,417
  -3,586
  -3,764
  -3,952
  -4,148
  -4,354
  -4,571
  -4,799
  -5,038
  -5,289
  -5,553
  -5,830
  -6,121
  -6,426
  -6,747
Total debt, $m
  41,568
  42,456
  45,605
  48,919
  52,404
  56,069
  59,923
  63,975
  68,235
  72,712
  77,417
  82,362
  87,558
  93,018
  98,754
  104,780
  111,110
  117,760
  124,745
  132,081
  139,787
  147,881
  156,382
  165,309
  174,685
  184,532
  194,873
  205,732
  217,136
  229,112
  241,687
Total liabilities, $m
  64,446
  65,334
  68,483
  71,797
  75,282
  78,947
  82,801
  86,853
  91,113
  95,590
  100,295
  105,240
  110,436
  115,896
  121,632
  127,658
  133,988
  140,638
  147,623
  154,959
  162,665
  170,759
  179,260
  188,187
  197,563
  207,410
  217,751
  228,610
  240,014
  251,990
  264,565
Total equity, $m
  21,386
  22,363
  23,441
  24,575
  25,768
  27,022
  28,341
  29,728
  31,186
  32,719
  34,329
  36,022
  37,800
  39,669
  41,632
  43,695
  45,862
  48,138
  50,529
  53,040
  55,677
  58,448
  61,357
  64,413
  67,622
  70,993
  74,532
  78,249
  82,152
  86,252
  90,556
Total liabilities and equity, $m
  85,832
  87,697
  91,924
  96,372
  101,050
  105,969
  111,142
  116,581
  122,299
  128,309
  134,624
  141,262
  148,236
  155,565
  163,264
  171,353
  179,850
  188,776
  198,152
  207,999
  218,342
  229,207
  240,617
  252,600
  265,185
  278,403
  292,283
  306,859
  322,166
  338,242
  355,121
Debt-to-equity ratio
  1.944
  1.900
  1.950
  1.990
  2.030
  2.070
  2.110
  2.150
  2.190
  2.220
  2.260
  2.290
  2.320
  2.340
  2.370
  2.400
  2.420
  2.450
  2.470
  2.490
  2.510
  2.530
  2.550
  2.570
  2.580
  2.600
  2.610
  2.630
  2.640
  2.660
  2.670
Adjusted equity ratio
  0.242
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,069
  612
  1,061
  1,548
  2,074
  2,640
  3,250
  3,905
  4,608
  5,362
  6,169
  7,039
  7,962
  8,949
  10,002
  11,125
  12,322
  13,596
  14,954
  16,398
  17,933
  19,565
  21,299
  23,141
  25,095
  27,169
  29,369
  31,701
  34,173
  36,793
  39,567
Depreciation, amort., depletion, $m
  2,240
  2,355
  2,468
  2,587
  2,712
  2,844
  2,982
  3,128
  3,281
  3,442
  3,611
  3,781
  3,967
  4,163
  4,369
  4,586
  4,813
  5,052
  5,303
  5,567
  5,843
  6,134
  6,439
  6,760
  7,097
  7,451
  7,822
  8,212
  8,622
  9,052
  9,504
Funds from operations, $m
  4,849
  2,966
  3,529
  4,135
  4,786
  5,484
  6,232
  7,032
  7,889
  8,803
  9,780
  10,819
  11,929
  13,112
  14,371
  15,710
  17,135
  18,649
  20,257
  21,964
  23,777
  25,700
  27,739
  29,901
  32,192
  34,620
  37,191
  39,914
  42,795
  45,845
  49,071
Change in working capital, $m
  -362
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -154
  -161
  -170
  -178
  -187
  -197
  -206
  -217
  -228
  -239
  -251
  -264
  -277
  -291
  -305
  -321
Cash from operations, $m
  5,211
  35,297
  3,610
  4,220
  4,875
  5,577
  6,330
  7,136
  7,997
  8,917
  9,900
  10,945
  12,062
  13,251
  14,517
  15,864
  17,296
  18,818
  20,435
  22,151
  23,973
  25,906
  27,956
  30,129
  32,431
  34,871
  37,455
  40,190
  43,086
  46,150
  49,392
Maintenance CAPEX, $m
  0
  -2,240
  -2,347
  -2,460
  -2,579
  -2,704
  -2,836
  -2,974
  -3,120
  -3,273
  -3,434
  -3,603
  -3,781
  -3,967
  -4,163
  -4,369
  -4,586
  -4,813
  -5,052
  -5,303
  -5,567
  -5,843
  -6,134
  -6,439
  -6,760
  -7,097
  -7,451
  -7,822
  -8,212
  -8,622
  -9,052
New CAPEX, $m
  -5,255
  -1,602
  -1,697
  -1,785
  -1,878
  -1,975
  -2,077
  -2,183
  -2,295
  -2,412
  -2,535
  -2,664
  -2,800
  -2,942
  -3,091
  -3,247
  -3,411
  -3,583
  -3,764
  -3,953
  -4,152
  -4,361
  -4,580
  -4,811
  -5,052
  -5,306
  -5,572
  -5,851
  -6,145
  -6,453
  -6,776
Cash from investing activities, $m
  -5,192
  -3,842
  -4,044
  -4,245
  -4,457
  -4,679
  -4,913
  -5,157
  -5,415
  -5,685
  -5,969
  -6,267
  -6,581
  -6,909
  -7,254
  -7,616
  -7,997
  -8,396
  -8,816
  -9,256
  -9,719
  -10,204
  -10,714
  -11,250
  -11,812
  -12,403
  -13,023
  -13,673
  -14,357
  -15,075
  -15,828
Free cash flow, $m
  19
  31,455
  -434
  -26
  418
  898
  1,417
  1,978
  2,582
  3,232
  3,930
  4,678
  5,482
  6,342
  7,263
  8,248
  9,299
  10,422
  11,619
  12,895
  14,254
  15,701
  17,241
  18,878
  20,619
  22,468
  24,432
  26,517
  28,729
  31,075
  33,564
Issuance/(repayment) of debt, $m
  -149
  3,005
  3,149
  3,313
  3,485
  3,665
  3,854
  4,052
  4,260
  4,477
  4,705
  4,945
  5,196
  5,459
  5,736
  6,026
  6,330
  6,650
  6,985
  7,337
  7,706
  8,094
  8,501
  8,928
  9,376
  9,847
  10,341
  10,859
  11,404
  11,976
  12,576
Issuance/(repurchase) of shares, $m
  2,997
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,545
  3,005
  3,149
  3,313
  3,485
  3,665
  3,854
  4,052
  4,260
  4,477
  4,705
  4,945
  5,196
  5,459
  5,736
  6,026
  6,330
  6,650
  6,985
  7,337
  7,706
  8,094
  8,501
  8,928
  9,376
  9,847
  10,341
  10,859
  11,404
  11,976
  12,576
Total cash flow (excl. dividends), $m
  2,545
  34,460
  2,715
  3,287
  3,903
  4,563
  5,271
  6,030
  6,842
  7,709
  8,636
  9,623
  10,678
  11,802
  12,999
  14,274
  15,630
  17,071
  18,604
  20,232
  21,960
  23,795
  25,742
  27,806
  29,995
  32,315
  34,773
  37,376
  40,133
  43,051
  46,139
Retained Cash Flow (-), $m
  -2,488
  -977
  -1,078
  -1,134
  -1,193
  -1,255
  -1,319
  -1,387
  -1,458
  -1,532
  -1,611
  -1,693
  -1,778
  -1,869
  -1,963
  -2,063
  -2,167
  -2,276
  -2,391
  -2,511
  -2,638
  -2,770
  -2,910
  -3,056
  -3,209
  -3,370
  -3,539
  -3,717
  -3,903
  -4,099
  -4,304
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  33,483
  1,637
  2,153
  2,710
  3,309
  3,952
  4,643
  5,384
  6,177
  7,025
  7,930
  8,899
  9,933
  11,036
  12,211
  13,463
  14,795
  16,213
  17,721
  19,323
  21,025
  22,832
  24,750
  26,786
  28,945
  31,233
  33,659
  36,229
  38,952
  41,835
Discount rate, %
 
  9.70
  10.19
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.38
  29.79
  31.28
  32.85
  34.49
  36.21
  38.03
  39.93
PV of cash for distribution, $m
 
  30,523
  1,348
  1,588
  1,770
  1,895
  1,962
  1,974
  1,934
  1,850
  1,729
  1,579
  1,411
  1,232
  1,051
  876
  712
  565
  437
  329
  241
  171
  118
  79
  51
  32
  19
  11
  6
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Enbridge Inc. operates as an energy transportation and distribution company in the United States and Canada. Its Liquids Pipelines segment operates common carrier and contract crude oil, natural gas liquids (NGL), and refined products pipelines and terminals. The company’s Gas Distribution segment operates as a natural gas utility that serves residential, commercial, and industrial customers in Central and Eastern Ontario, and Northern New York State, as well as in Quebec and New Brunswick. Its Gas Pipelines, Processing and Energy Services segment has interests in natural gas pipelines, including the Vector Pipeline and transmission and gathering pipelines in the Gulf of Mexico, as well as holds an interest in Aux Sable, a natural gas fractionation and extraction facility. This segment is also involved in the renewable energy projects, such as wind, solar, and geothermal projects with a generating capacity of approximately 2,800 MW. The company’s Sponsored Investments segment is involved in renewable and alternative power generation; crude oil and liquid petroleum transportation and storage; and natural gas and NGL gathering, treating, processing, and transportation. Enbridge Inc. has a strategic partnership with EDF Group for the development, construction, and operation of three French offshore wind farms. The company was formerly known as IPL Energy Inc. and changed its name to Enbridge Inc. in October 1998. Enbridge Inc. was founded in 1949 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Enbridge Inc. (ENB)

Valuation Ratios
P/E Ratio 25.8
Price to Sales 1.5
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow -1213.9
Growth Rates
Sales Growth Rate 2.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.7%
Cap. Spend. - 3 Yr. Gr. Rate -9.1%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 170.6%
Total Debt to Equity 194.4%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. -8.4%
Return On Total Capital 3.3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.3%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 30.5%
Gross Margin - 3 Yr. Avg. 25.8%
EBITDA Margin 18.8%
EBITDA Margin - 3 Yr. Avg. 14.7%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 7.2%
Pre-Tax Margin 7.1%
Pre-Tax Margin - 3 Yr. Avg. 4.3%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 3.5%
Effective Tax Rate 5.8%
Eff/ Tax Rate - 3 Yr. Avg. 526.5%
Payout Ratio 69.7%

ENB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ENB stock intrinsic value calculation we used $34560 million for the last fiscal year's total revenue generated by Enbridge Inc.. The default revenue input number comes from 2016 income statement of Enbridge Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ENB stock valuation model: a) initial revenue growth rate of 4.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.7%, whose default value for ENB is calculated based on our internal credit rating of Enbridge Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Enbridge Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ENB stock the variable cost ratio is equal to 18.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26185 million in the base year in the intrinsic value calculation for ENB stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Enbridge Inc..

Corporate tax rate of 27% is the nominal tax rate for Enbridge Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ENB stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ENB are equal to 97.2%.

Life of production assets of 15 years is the average useful life of capital assets used in Enbridge Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ENB is equal to -4.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $21386 million for Enbridge Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1634.71 million for Enbridge Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Enbridge Inc. at the current share price and the inputted number of shares is $92.6 billion.


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The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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