Ameren NYSE AEE

							Ameren
NYSE: 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


Introduction   Operations   Comps/DCF   Outlook
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


Introduction   Operations   Comps/DCF   Outlook
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

Introduction      Operations    Comps/DCF       Outlook
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



Introduction         Operations          Comps/DCF       Outlook
    Electricity
   Open Market
   competitors                      Ameren       regulated         Consumer
                                    subsidiaries   76% of          Demand
                                                   sales
       Other AEE
       subsidiary
       generation
                           Excess
Ameren                     demand
                           only     Ameren
Generates                                     non-regulated      Municipalities,
                                    Energy
Electricity   All Genco,                                         commercial, industrial,
                                    Marketing   24% of
              AERG,
              EEI                   Company     sales            other utilities, etc.
              generation

              *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
   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
   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%)

Introduction           Operations        Comps/DCF          Outlook
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%




Introduction   Operations   Comps/DCF   Outlook
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

Introduction   Operations   Comps/DCF   Outlook
SWOT
Strengths                             Weaknesses
Revenue Dependability                 Outdated Infrastructure
Regulated Monopoly                    Dependency on Regulators



Opportunities                         Threats
Renovations could lead to greater     Regulatory Lag
efficiencies                          Environmental Regulation
Acquisitions upon recovery            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
   Uncertainty in credit and capital markets
   Environmental awareness
       Cap Ex, Taxes, Litigation costs




Introduction      Operations     Comps/DCF   Outlook
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


Introduction      Operations   Comps/DCF    Outlook
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


Introduction       Operations    Comps/DCF      Outlook
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




Introduction      Operations      Comps/DCF        Outlook
Short Term Credit Facilities
   Total = $2.029B from 18 banks
   Revolving credit facilities up to:
       $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
       $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
   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

Introduction         Operations          Comps/DCF            Outlook
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



Introduction        Operations         Comps/DCF    Outlook
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
Introduction     Operations    Comps/DCF     Outlook
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

Introduction   Operations   Comps/DCF   Outlook
Shareholder Makeup
                      Shareholder electricity price
    UE is exposed to 5% of Makeup
    fluctuations
                                      % held by insiders,
   Genco, AERG, EEI are exposed to 100% of 0.14%

    electricity price fluctuations
   IP, CIP, CILCO also have certain cost recovery
               % held by others,
                   43.26%
    abilities in electricity                                      % held by

   Natural Gas costs are passed directly to the            institutions, 56.60%


    consumer
   Uses hedging strategies to mitigate risks

Introduction             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.
       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



Introduction      Operations      Comps/DCF       Outlook
Comparable Companies
   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



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      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%



Introduction          Operations            Comps/DCF           Outlook
Comparable Companies




Introduction   Operations   Comps/DCF   Outlook
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



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
   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
   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.)
   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