ameren nyse: aee

AmerenNYSE: AEE

Presented by:

Ed Kennedy

Brandon Honey

March 12, 2009

Overview

Company Introduction Operations/Regulations Comps and DCF Analysis Final Outlook

Introduction Operations Comps/DCF Outlook

Company Overview

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


Business Segments Missouri regulated

Missouri Public Service Commission (MoPSC) Federal Energy Regulatory Commission

Illinois regulated Illinois Commerce Commission (ICC) Federal Energy Regulatory Commission

Non-rate regulated


Subsidiaries Missouri regulated services

Union Electric (AmerenUE) Illinois regulated services

Central Illinois Light Company (AmerenCILCO) Central Illinois Public Service Company (AmerenCIPS) Illinois Power Company (AmerenIP)

Non-rate regulated services Genco, AERG, EEI

Ameren-owned electricity generating subsidiaries Ameren Energy Marketing Company


Regulation

Rates are the most influential factor for performance and liquidity Allowed zero profit on the cost of power

Sell it what AEE bought it for Make profit on delivery of power

Regulated rates Rates are set by state and federal regulation entities

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


Electricity

Ameren Generates Electricity

Ameren Energy Marketing Company

Municipalities, commercial, industrial, other utilities, etc.

Consumer Demand

Ameren subsidiaries

Open Market competitors

*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.

All Genco, AERG, EEI generation

Other AEE subsidiary generation

Excess demand only

regulated

non-regulated

76% of sales

24% of sales

Natural Gas

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


2008 Earnings Natural Gas Revenues

14% regulated by MoPSC 86% regulated by ICC

Electric Revenues 35% regulated by MoPSC 41% regulated by ICC 24% based on market

Inputs for electricity generation: Coal (85%), nuclear (12%), hydroelectric (2%), natural gas

(1%), oil (< 1%)


2008 Earnings Revenues: $7.8 B

YOY Growth: 3.66% Operating Expenses: $6.5B

YOY Growth: 4.40% Net Income: $605 M

YOY Change: -1.945%


2008 Margins Operating Margin: 17.375%

2007: 17.958% Net Profit Margin: 7.718%

2007: 8.159% Margins have gradually decreased since

2001 OPM: From 25% in 2001 NPM: From 12% in 2001


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

Industry Issues

Political and Regulatory resistance to higher rates Obama looking to cap and tax carbon emissions by

auction Uncertainty in credit and capital markets Environmental awareness

Cap Ex, Taxes, Litigation costs


Recent Rate Changes Missouri regulated

Increase of $162 million annually Based on allowed 10.76% ROE

Illinois regulated Increase of $161 million annually

Based on allowed 10.7% ROE

Management expects an ROE of 6% for both Illinois and Missouri regulated in 2009


Industry Trends Returns expected are below the ROE’s allowed

Rates depend on historical costs and costs are expected to increase

Significant costs to update infrastructure to comply with environmental regulations 50% is expected to be recoverable in MO market

Environmental Cost Recovery Mechanisms Decreased plant availability during renovation Higher operating costs


Macroeconomic Factors 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


Short Term Credit Facilities Total = $2.029B from 18 banks Revolving credit facilities up to:

$1B expire January 2010 $1.029B expire July 2010


Short Term Credit Facilities Total = $2.029B from 18 banks End of 2008, $1.291B drawn from the banks

$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


Long-Term Debt Maturities


Year of Maturation Amount (in millions)

2009 380

2010 204

2011 154

2012 179

2013 355

Thereafter 5624

Credit Ratings Issuer/Corporate Credit Rating

Moody’s - Baa3 Senior Unsecured Debt

Moody’s - Baa3 Downgraded August 2008, affirmed afterward,

stable 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


Equity Repurchase/Issuance 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

Capital Expenditures 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

Targeted range 50-55% equity Expenditures will be towards infrastructure

improvements and environmental regulation compliance $4.5-5.5B towards environmental regulation until 2018 May be recoverable by 2.5% annual rate increases


Commodity Risk 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


Shareholder Makeup 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


Shareholder Makeup

% held by insiders, 0.14%

% held by institutions, 56.60%

% held by others, 43.26%

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

Comparable Companies


Centerpoint Energy Inc. Natural gas distribution, electric transmission and

distribution, approximately 3.2 million customers Consolidated Edison Inc.

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



Northeast Utilities Electric distribution, natural gas distribution, electric

transmission, approximately 2 million customers PG&E Corp.

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



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



Name Location Beta ROA ROE

Ameren Missouri 0.95 3.92% 8.82%Centerpoint Energy Inc. Texas 0.92 4.24% 23.24%Consolidated Edison Inc. New York 0.26 3.36% 9.82%

Exelon Corp. Illinois 0.81 7.07% 25.65%Northeast Utilities Massachusetts 0.7 3.89% 8.79%

PG & E Corp. San Francisco 0.45 3.65% 13.21%Public Service Enterprise Group New Jersey 0.59 N/A 13.13%

SCANA Corp. South Carolina 0.68 4.10% 11.52%Wisconsin Energy Corp. Wisconsin 0.43 3.39% 11.14%

Industry 0.64 4.20% 13.92%

DCF Assumptions

Increased Corporate Taxes With the current changes in political climate, Ameren should expect to

see increases in corporate taxes over the upcoming five years Minimal Capital Expenditures

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


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

Valuations 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


Final Outlook 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


Final Outlook (cont.) 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


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%


Proposal Ameren is currently overvalued and is exposed

to many risks Sell 200 shares at the market price


ameren nyse: aee

Documents

electricity service

electricity generation

rate changes

gas price fluctuations

net profit margin

aee subsidiaries

requestno mo volumebased

eeiamerenowned electricity