SRE 3Q2017: New Strategy Takes Shape with Oncor; New Projects Increase NIV

We look for SRE to increase acquisition and investments activities in TX/Gulf-Coast areas. Other than generation, R&M nothing seems prohibited, especially if it has Mexico component
Guiding towards upperend of $5-$5.30/share 2017 AEPS guidance
2020 AEPS guidance of $7.20-$7.80 seems low – only some 12% CAGR from 2016A AEPS. SRE is expected to grow dividends 8%-9% to match
2018 GRC filed 10/2017 w/FD expected late-2018/early-2019
We look for outperformance with regards to SRE’s guidance in ST, MT and LT
Within next 12-months we look for Cameron 4&5 to get FID and begin construction
NIV/share moves up to $230/share from $210/share on 2017 performance and additions of new capital projects

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SRE: Details on financing given; Oncor deal looks to remain on track for 1H18 close

Expected 2018E AEPS accretion of $0.15-$0.25/share, which is in line with our expectations (please see the first Table 1 below)
SRE intends to own 100% of Energy Future Holdings (If realized SRE would own approximately 80% of Oncor and TTI would own the balance of 20%) after $3.0B debt at the holding company is paid-off, which we expect to occur within 7 years
Equity issue of some 50%-65% of SRE’s equity commitment, which is about $3.87B (60% of $6.45B)

Balance of the equity commitment is going to come from a combination of cash and debt, likely more debt in our opinion, given the plethora of projects that SRE needs to fund
Still searching for 40% equity commitment for transaction or about $2.58B of third-party equity investment: Looking for long-term strategic partner with about a 7 year investment horizon
Based on $7.5B five-year investment program at Oncor, SRE expects CAGR in net income to be some 6%-7% through 2022
SRE states 100% valuation for Oncor based on $18.8B EV
Deal expected to close in 1H2018

Conclusion: The more we study and hear about this deal, the more we like it.

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