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Ameren Corporation _AEE_ November 14_ 2007 by yurtgc548

VIEWS: 9 PAGES: 30

									  Ameren Corporation
        (AEE)
      November 15, 2007

Tom Grove
Jason Mueller
Marissa Muge Tian
Outline
 Company Background and Structure
 Operations and Regulation
 Comps and DCF Analysis
 Recent Announcements
 Outlook and Recommendation
Portfolio Position

 Purchased 400 shares on April 27, 2006,
  at $50.03 per share, total $20,012
 Current price is $52.35, which equates to
  a total value of $20,940
 9.09% of total portfolio
 Total Appreciation: $928.04, or 4.64%
Company Background
   Public utility holding company
        Headquartered in St. Louis, MO
        $19 billion in assets and $6.8 billion in sales
   Largest utility in Missouri, second largest in Illinois
        2.4 million electric customers
        1 million natural gas customers
        64,000 square mile territory
   Created in 1997 with the merger of Union Electric Company
    and CIPSCO Incorporated, the parent of the Central Illinois
    Public Service Company
   In 2003, acquired the parent of Central Illinois Light Company
    and in 2004 with the acquired Illinois Power Company
Business Segments
   Missouri regulated:
     Union   Electric (UE)
   Illinois regulated:
     Central   Illinois Public Service Company (CIPS)
     Central Illinois Light Company (CILCO)
     Illinois Power Company (IP)

   Non-rate-regulated generation:
     AmericanGenerating Energy Company (Genco)
     CILCO (AERG)
Ameren Corp. Coverage Areas
2006 Net Income by Operating
   Company (in millions $)
      Revenues by Business Segment


             $55
       $19                           UE
      $45                            CIPS
                                     Genco
      $49                            CILCO
                       $343          AERG
       $35
                                     IP
Outline
 Company Background and Structure
 Operations and Regulation
 Comps and DCF Analysis
 Recent Announcements
 Outlook and Recommendation
The Business of Public Utilities
   Generation
       Power plants
   Transmission
       Transformers take voltage
        from low to high
   Distribution
       Lower voltage and
        distribute to end consumer
How it works…
   Reverse auction
     Generation for power goes out for bids
     Sellers compete in pricing war for the power
     from generating companies


   Power ‘dumped’ into a grid or ‘pulled out’
Rates and Regulation
   High regulation of public utilities
   Single most important factor influencing
    Ameren’s profitability
   Kilowatt per hour
   ZERO margin on sale of
        electricity
       Delivery of power
The Rate Freeze on Electricity
   Electric rates—Missouri
     AmerenUE, the Missouri Pubic Service Commission
     Electric rate frozen before July 1, 2006
     In May 2007, the commission granted a 2.1% overall electric rate
      increase of about $42 million effective June 4, 2007. AmerenUE had
      not had an increase in electric retail rates since 1987
   Electric rates—Illinois
     AmerenIP, AmerenCIPS, and AmerenCILCO, the Illinois Commerce
      Commission (ICC)
     Electric rates were frozen through Jan. 1, 2007
     In November 2006, the ICC granted $97 million increased rates
      effective Jan. 2, 2007.
     Monthly increases as high as 40-55% in some areas of Illinois.
        (Total electric customers)
Rates and Regulation
   Nature Gas rates—Missouri
       In March 2007 , the Missouri Public Service Commission approved
        AmerenUE an increase of $6 million in natural gas delivery rates.
   Nature Gas rates—Illinois
     AmerenCILCO, AmerenCIPS received ICC approval for natural gas
      delivery rate increases in fourth quarter 2003. In May 2005, the ICC
      awardedAmerenIP increases in annual natural gas delivery rates of $11
      million.
     On November 2, 2007, Ameren Illinois utilities requested the ICC to
      approve a $247 million annual rate increase. Electricity rates for typical
      customers would go up as 8.7% and gas as 11.6% starting next fall if
      the request is approved, adding up to $11 or more to an average
      monthly bill depending on location and service.
Bring on the Relief…
   State of Illinois announces $1 billion in
    relief funding
     $488million to Ameren customers, of which
      Ameren will pay $150 million
 High Bill Relief Fund, Special Hardships
  Fund, etc.
 Customer Elect Plan
Outline
 Company Background and Structure
 Operations and Regulation
 Comps and DCF Analysis
 Recent Announcements
 Outlook and Recommendation
Comparable Companies
•   Exelon Corporation
       electric generating, wholesale energy marketing and retail sales
•   Great Plains Energy Inc.
       retail electricity supply services offering retail choice, and holds
       investments in housing limited partnerships
•   Integrys Energy Group, Inc.
       electric and natural gas wholesale and retail
•   Nicor Inc.
       natural gas distributing and transporting, energy-related products
       and services
Comparable Companies
                  Ticker   State      Sales($M)    Assets($M)    Employees
Ameren Corp       AEE      Illinois        6,880        19,578        8,988
Exelon            EXC      Illinois       15,655        44,319       17,200
Corporation
Great Plains      GXP      Missouri        2,675         4,335        2,470
Energy Inc.
Integrys Energy   TEG      Illinois        6,890         6,861        3,326
Group, Inc.
Nicor Inc.        GAS      Illinois        2,960         4,090        3,900
Comparable Companies
DCF Assumptions
   Increasing Revenues – With the rate freeze over,
    Ameren is going to be moving toward market rates over
    the next several years. This will result in an increase in
    revenues over the next few years.
   Large Capital Expenditures – Ameren has taken
    a leadership to reduce emissions for coal-fired plants.
    Also, the Clean Air Interstate and Clean Air Mercury
    Rules are requiring further reductions in SO2 and NOx
    emissions, as well as mercury emissions. Challenges
    arise from extracting trace quantities of mercury from
    millions tons of coal burned annually with no proven
    technology to do so.
Assumptions (cont.)
   Increased Operating Expenses – We are
    assuming Ameren will face increasing costs for Fuel and
    Purchased Power and Gas Purchased For Resale. Both
    of these costs appear on Ameren’s income statement
    and we believe they will increase in the future as fossil
    fuels and natural gas become more and more scarce.
                     DCF Results
DCF Value per share: $50.52
                      Weighted Average Cost of Capital

          Weight Debt                                    32.72%


          Weight Equity                                  67.28%


          Cost Debt                                      6.62%


          Cost Equity                                    7.85%


          β (from Value Line)                               0.8


          Rf                                             3.25%


          Rm                                             9.00%


          Mkt. risk premium                              5.75%


          Tax rate                                       32.72%


          WACC                                           6.74%

          Sustainable growth rate                        2.50%
How Ameren Fits…
 Consistent Price: Since the IP acquisition
  in 2004 the stock has consistently been in
  the range of $48-$56.
 Consistent Payout: 9 decades of
  uninterrupted cash dividend payments to
  stockholders. Since 1998, Ameren has
  paid out $.635 per share every quarter.
Outline
 Company Background and Structure
 Operations and Regulation
 Comps and DCF Analysis
 Recent Announcements
 Outlook and Recommendation
Announcements
Ameren sees Q3 profit fall 17%
    Friday November 9, 1:20 pm ET
Ameren Corp. said Friday that its third-quarter net
 income fell nearly 17 percent on higher fuel and
 other costs. The company reported that its third-
 quarter net income was $244 million, down 16.7
 percent from $293 million in last year's quarter.

   Illinois rate relief settlement (AEE to contribute $150M)
   Changes in IL electric rate structures
   Rising Operating Costs
Announcements
   Ameren Corporation Reaffirms FY 2007 EPS
    Outlook ST. LOUIS, Nov. 5 /PRNewswire-FirstCall/

    Ameren Corporation announced that for fiscal 2007, it
    has reaffirmed its earnings guidance. The Company
    expects GAAP earnings to range between $2.80-$3.05
    per share and non-GAAP 2007 earnings to range
    between $3.15- $3.40 per share.
Outline
 Company Background and Structure
 Operations and Regulation
 Comps and DCF Analysis
 Recent Announcements
 Outlook and Recommendation
Future Financial Outlook
   Significant revenue increases in ’07 & ’08
       Gradual return to market pricing
   Heavy capital expenditures
       Regulation compliance upgrades
 Continued strength in dividend payout
 Limited stock price fluctuation
       Comparisons to a corporate bond
Recommendation
   HOLD 400 shares of Ameren Corp. (AEE)
    at the market price $52.35.
     Low price volatility
     Lucrative, consistent dividend yield
   Future Considerations:
     Legislative risk
     Capital expenditures
     Revenue recovery following rate freeze
Sources
 2006 Ameren Corp. Annual Report & 10-K
 3Q2007 Ameren Corp. 10-Q Filing
 2Q2007 Ameren Corp. 10-Q Filing
 1Q2007 Ameren Corp. 10-Q Filing
 2005 Ameren Corp. Annual Report
 www.ameren.com

								
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