Ameren
NYSE: AEE
Presented by:
Ed Kennedy
Brandon Honey
March 12, 2009
Overview
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Company Introduction
Operations/Regulations
Comps and DCF Analysis
Final Outlook
Introduction
Operations
Comps/DCF
Outlook
Company Overview
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Public utility holding company formed as a
result of Union Electric and CIPSCO, Inc. in
1997
Provides natural gas and electricity service to
consumers in MO and IL
Headquartered in St. Louis, MO
Introduction
Operations
Comps/DCF
Outlook
Business Segments
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Missouri regulated
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Illinois regulated
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Missouri Public Service Commission (MoPSC)
Federal Energy Regulatory Commission
Illinois Commerce Commission (ICC)
Federal Energy Regulatory Commission
Non-rate regulated
Introduction
Operations
Comps/DCF
Outlook
Subsidiaries
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Missouri regulated services
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Illinois regulated services
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Union Electric (AmerenUE)
Central Illinois Light Company (AmerenCILCO)
Central Illinois Public Service Company (AmerenCIPS)
Illinois Power Company (AmerenIP)
Non-rate regulated services
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
Genco, AERG, EEI
 Ameren-owned electricity generating subsidiaries
Ameren Energy Marketing Company
Introduction
Operations
Comps/DCF
Outlook
Regulation
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Rates are the most influential factor for performance and liquidity
 Allowed zero profit on the cost of power
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Make profit on delivery of power
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Regulated rates
Rates are set by state and federal regulation entities

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Sell it what AEE bought it for
Increases occur upon Ameren’s request and regulator’s approval
FERC approval needed prior to issuing debt, issuing equity,
merging, or acquiring utility companies
Environmental regulation
Introduction
Operations
Comps/DCF
Outlook
Electricity
Open Market
competitors
regulated
Ameren
subsidiaries
76% of
Consumer
Demand
sales
Other AEE
subsidiary
generation
Ameren
Generates
Electricity
All Genco,
AERG,
EEI
generation
Excess
demand
only
Ameren
non-regulated
Energy
Marketing
24% of
sales
Company
Municipalities,
commercial, industrial,
other utilities, etc.
*AEE subsidiaries either generate or buy their electricity. They can
buy it from the open market or AEMC if it’s cheaper than generating
it, there is excess demand, there are plant outages, or there are
extreme weather conditions. The marketing company has agreed to
purchase all Genco, AERG, EEI generation. If it needs more, it buys
more from the market.
Natural Gas
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100% of natural gas revenues regulated in 2008
Any gas price fluctuations are reflected in customers’
bills
Ameren files requests for rate changes and the MoPSC
and ICC either grant or deny the request
No MO volume-based rate increases until March 15,
2010
Introduction
Operations
Comps/DCF
Outlook
2008 Earnings
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Natural Gas Revenues
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14% regulated by MoPSC
86% regulated by ICC
Electric Revenues
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35% regulated by MoPSC
41% regulated by ICC
24% based on market

Introduction
Inputs for electricity generation:
 Coal (85%), nuclear (12%), hydroelectric (2%), natural gas
(1%), oil (< 1%)
Operations
Comps/DCF
Outlook
2008 Earnings
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Revenues: $7.8 B
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Operating Expenses: $6.5B
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YOY Growth: 3.66%
YOY Growth: 4.40%
Net Income: $605 M

YOY Change: -1.945%
Introduction
Operations
Comps/DCF
Outlook
2008 Margins
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Operating Margin: 17.375%
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Net Profit Margin: 7.718%
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2007: 17.958%
2007: 8.159%
Margins have gradually decreased since
2001
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OPM: From 25% in 2001
NPM: From 12% in 2001
Introduction
Operations
Comps/DCF
Outlook
SWOT
Strengths
Weaknesses
Revenue Dependability
Regulated Monopoly
Outdated Infrastructure
Dependency on Regulators
Opportunities
Threats
Renovations could lead to greater
efficiencies
Acquisitions upon recovery
Regulatory Lag
Environmental Regulation
Commodity Price Increases
Introduction
Operations
Comps/DCF
Outlook
Industry Issues

Political and Regulatory resistance to higher rates

Obama looking to cap and tax carbon emissions by
auction
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Uncertainty in credit and capital markets
Environmental awareness


Cap Ex, Taxes, Litigation costs
Introduction
Operations
Comps/DCF
Outlook
Recent Rate Changes
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Missouri regulated
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Increase of $162 million annually
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Illinois regulated
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Increase of $161 million annually
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Based on allowed 10.76% ROE
Based on allowed 10.7% ROE
Management expects an ROE of 6% for both
Illinois and Missouri regulated in 2009
Introduction
Operations
Comps/DCF
Outlook
Industry Trends
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Returns expected are below the ROE’s allowed

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Rates depend on historical costs and costs are
expected to increase
Significant costs to update infrastructure to
comply with environmental regulations
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50% is expected to be recoverable in MO market
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Environmental Cost Recovery Mechanisms
Decreased plant availability during renovation
Higher operating costs
Introduction
Operations
Comps/DCF
Outlook
Macroeconomic Factors
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Higher income taxes for the wealthy
 Lower P/E ratios in the market, lesser discretionary income
Increased borrowing by US government provides competition
for funds, possibly resulting in lower overall share prices in the
market
Flight to safety continues to hurt share prices
Deteriorating International Market discourages foreign
investors
Introduction
Operations
Comps/DCF
Outlook
Short Term Credit Facilities
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Total = $2.029B from 18 banks
Revolving credit facilities up to:

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$1B expire January 2010
$1.029B expire July 2010
Introduction
Operations
Comps/DCF
Outlook
Short Term Credit Facilities


Total = $2.029B from 18 banks
End of 2008, $1.291B drawn from the banks
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$584M/1.029B drawn from July 2010 expiration
$707M/1B drawn from Jan 2010 expiration
Currently limited in commercial paper market
because of downgrades on ST debt
Introduction
Operations
Comps/DCF
Outlook
Long-Term Debt Maturities
Year of Maturation
Amount (in millions)
2009
380
2010
204
2011
154
2012
179
2013
355
Thereafter
5624
Introduction
Operations
Comps/DCF
Outlook
Credit Ratings
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Issuer/Corporate Credit Rating
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Senior Unsecured Debt

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Moody’s - Baa3
Moody’s - Baa3
Downgraded August 2008, affirmed afterward,
stable

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Liquidity concerns, costs rising faster than revenues, cap
ex, labor costs, lack of environmental cost recovery
Affirmed only because reduced dividend will free up cash
flows

Still likely to have interest rates reasonably higher due to market
uncertainty
Introduction
Operations
Comps/DCF
Outlook
Equity Repurchase/Issuance
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
Management issues shares through 401k plans
Have not repurchased any common stock
Year of Issue
Number of Shares
Price of Shares
2008
4 million
$38.50
2007
1.7 million
$53.53
2006
1.9 million
$50.53
Introduction
Operations
Comps/DCF
Outlook
Capital Expenditures
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Plans $1.685B expenditure in 2009
Provided an estimated range of $6.6-8.7B total
expenditures 2010-2013
Expenditures will be funded by debt and equity
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Targeted range 50-55% equity
Expenditures will be towards infrastructure
improvements and environmental regulation
compliance
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$4.5-5.5B towards environmental regulation until 2018
May be recoverable by 2.5% annual rate increases
Introduction
Operations
Comps/DCF
Outlook
Commodity Risk
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UE is exposed to 5% of electricity price
fluctuations
Genco, AERG, EEI are exposed to 100% of
electricity price fluctuations
IP, CIP, CILCO also have certain cost recovery
abilities in electricity
Natural Gas costs are passed directly to the
consumer
Uses hedging strategies to mitigate risks
Introduction
Operations
Comps/DCF
Outlook
Shareholder Makeup
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UE is exposed toShareholder
5% of Makeup
electricity price
fluctuations
Genco, AERG, EEI are exposed to 100% of
electricity price fluctuations
IP, CIP, CILCO also have certain cost recovery
abilities in electricity
Natural Gas costs are passed directly to the
consumer
Uses hedging strategies to mitigate risks
Introduction
% held by insiders,
0.14%
% held by others,
43.26%
% held by
institutions, 56.60%
Operations
Comps/DCF
Outlook
Correlation
Monthly Ameren Correlation (past 10 yrs)
Company
Ticker
Correlation
American Eagle
AEO
-0.0638
Copart
CPRT
0.0762
Diamond Offshore
DO
0.2685
First Industrial
FR
0.5116
Jack Henry & Associates
JKHY
0.1139
Kimberly-Clark
KMB
0.3298
McDonalds
MCD
0.3202
Stericycle
SRCL
-0.0140
Walgreens
WAG
0.1551
MEMC Electronics
WFR
0.0759
Average Correlation = .1898
Introduction
Operations
Comps/DCF
Outlook
Comparable Companies

Centerpoint Energy Inc.


Consolidated Edison Inc.


Natural gas distribution, electric transmission and
distribution, approximately 3.2 million customers
Electric, gas, and steam service provider, approximately
1.1 million customers
Exelon Corp.

Generation, distribution, transmission, and sale of
electricity, approximately 5.8 million customers
Introduction
Operations
Comps/DCF
Outlook
Comparable Companies

Northeast Utilities


PG&E Corp.


Electric distribution, natural gas distribution, electric
transmission, approximately 2 million customers
Electricity and natural gas distribution, approximately 9.4
million customers
Public Service Enterprise Group

Transmission, distribution, and sale of electric energy and
natural gas, approximately 3.8 million customers
Introduction
Operations
Comps/DCF
Outlook
Comparable Companies

SCANA Corp.


Generates, transports, and sells electric power,
approximately 1.8 million customers
Wisconsin Energy Corp.

Electricity and natural gas provider, approximately 2.1
million customers in the Wisconsin and Michigan region
Introduction
Operations
Comps/DCF
Outlook
Comparable Companies
Name
Location
Missouri
Ameren
Texas
Centerpoint Energy Inc.
New York
Consolidated Edison Inc.
Illinois
Exelon Corp.
Massachusetts
Northeast Utilities
San Francisco
PG & E Corp.
Public Service Enterprise Group New Jersey
South Carolina
SCANA Corp.
Wisconsin
Wisconsin Energy Corp.
Industry
Introduction
Operations
Beta
ROA
ROE
0.95
0.92
0.26
0.81
0.7
0.45
0.59
0.68
0.43
3.92%
4.24%
3.36%
7.07%
3.89%
3.65%
N/A
4.10%
3.39%
8.82%
23.24%
9.82%
25.65%
8.79%
13.21%
13.13%
11.52%
11.14%
0.64
4.20%
13.92%
Comps/DCF
Outlook
Comparable Companies
Introduction
Operations
Comps/DCF
Outlook
DCF Assumptions

Increased Corporate Taxes


Minimal Capital Expenditures


With the current changes in political climate, Ameren should expect to
see increases in corporate taxes over the upcoming five years
Ameren has recognized a decline in cash flows over the previous year
that will likely diminish their plans for capital expenditures over the next
five years. The firm continues to fund these capital expenditures through
50% equity and 50% debt, but this decrease in cash flows will make it
tougher to fund these projects.
WACC Calculation

Using ROE “Goal-Post” Theory, we came to a WACC calculation based
on the firms return on equity and CAPM analysis
Introduction
Operations
Comps/DCF
Outlook
DCF Calculation
Weighted-Average Cost of Capital (WACC)
Weight of Debt
61.20%
Weight of Equity
38.80%
Cost of Debt
7.44%
Cost of Equity
9.78%
β (Beta)
0.92
Risk-Free Rate (Rf)
4.00%
Market Return (Rm)
10.00%
Market Risk Premium (RPm)
6.00%
Tax Rate
35.00%
WACC
6.75%
Sustainable Growth
2.00%
Ameren Share Price = $19.22
Introduction
Operations
Comps/DCF
Outlook
Valuations
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CAPM DCF Valuation: $20.33
ROE DCF Valuation: $18.17
“Goal Post” Valuation: $19.22
Comparables Valuation: Slightly Overvalued
Constant Dividend Discount Model: $15.74
Constant Growth Dividend Discount Model:
$19.78
Current Price: $19.78
Introduction
Operations
Comps/DCF
Outlook
Final Outlook
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Costs are rising faster than revenues and will
continue to do so
Credit will be more difficult to come by
Equity investment is discouraged because of
higher taxes for the rich, international economic
deterioration, and flight to safety due to
uncertainty
Ameren will incur large capital expenditures to
meet environmental regulations
During renovation, plants will be unavailable
Introduction
Operations
Comps/DCF
Outlook
Final Outlook (cont.)
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Ameren will pay higher taxes due to higher
income taxes, carbon emission taxes, and
elimination of tax breaks for corporations
Commodity prices will increase
Regulatory agencies will be more hesitant to
increase rates due to economic circumstances
and political views
Bad debt expense will increase due to economic
conditions
Raising equity capital will be more difficult
Introduction
Operations
Comps/DCF
Outlook
Holding

Currently own 400 shares at $19.78



2.78% of the portfolio value
Purchased 400 shares at $50.03 on April 27,
2006
Unrealized loss of 60.5%
Introduction
Operations
Comps/DCF
Outlook
Proposal


Ameren is currently overvalued and is exposed
to many risks
Sell 200 shares at the market price
Introduction
Operations
Comps/DCF
Outlook