Enable Midstream Partners (ENBL) has announced significant measures to strengthen its financial position as it seeks to deal with challenging industry conditions. This includes halving dividends by 50% from $0.3305 to $0.16525/share – a move which the company says will save $290 million of cash on an annualized basis.
“Due to the sharp decline in commodity prices and producer activity across our footprint and the future business uncertainty created by the coronavirus pandemic, we are taking decisive action to fortify our financial position, protect our balance sheet and ensure liquidity to navigate these unprecedented market conditions,” explained Rod Sailor, president and CEO.
Enable is: 1) reducing 2020 total expansion capital expenditures by $115 million, or 48%, from the top end of the previously provided outlook; 2) targeting a reduction in maintenance capital of $20 million, or 17%, from the midpoint of the previously provided outlook for 2020 and 2021; and 3) targeting cost savings of $35 in 2020, growing to run-rate savings of about $70 million in 2021.
Taken together, the actions are expected to result in an annualized increase in retained cash flow of approximately $450 million and should allow Enable to fully fund its business and reduce total debt in 2020.
RBC Capital analyst TJ Schultz believes this was the right call to make: “ENBL’s actions are appropriate and expected in this market (ENBL was yielding ~54%) in our view. The 50% distribution cut makes sense as it provides ENBL with flexibility to fund capex and reduce debt this year” he writes, noting that the new payout still implies a 27% yield at current price.
He has a hold rating on the stock and $5 price target. Overall, Enable has a Moderate Buy analyst consensus on TipRanks. (See ENBL’s stock analysis on TipRanks). Given that the stock is currently trading at $2.40 the average analyst price target indicates upside potential of almost 200%.
Encouragingly, the company reminded investors that Enable has ample liquidity available under its $1.75 billion revolving credit facility and has no near-term senior notes maturities.