Intrinsic value of Ameren - AEE

Previous Close

$64.78

  Intrinsic Value

$19.80

stock screener

  Rating & Target

str. sell

-69%

Previous close

$64.78

 
Intrinsic value

$19.80

 
Up/down potential

-69%

 
Rating

str. sell

We calculate the intrinsic value of AEE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 15.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  6,301
  6,445
  6,611
  6,797
  7,003
  7,229
  7,475
  7,742
  8,029
  8,337
  8,667
  9,019
  9,393
  9,791
  10,214
  10,661
  11,135
  11,636
  12,165
  12,724
  13,314
  13,936
  14,592
  15,283
  16,010
  16,776
  17,582
  18,431
  19,323
  20,262
Variable operating expenses, $m
  1,499
  1,532
  1,571
  1,614
  1,661
  1,714
  1,771
  1,832
  1,899
  1,970
  2,005
  2,086
  2,173
  2,265
  2,363
  2,466
  2,576
  2,692
  2,814
  2,944
  3,080
  3,224
  3,376
  3,536
  3,704
  3,881
  4,068
  4,264
  4,470
  4,688
Fixed operating expenses, $m
  3,396
  3,471
  3,547
  3,625
  3,705
  3,786
  3,870
  3,955
  4,042
  4,131
  4,222
  4,315
  4,410
  4,507
  4,606
  4,707
  4,811
  4,916
  5,025
  5,135
  5,248
  5,364
  5,482
  5,602
  5,725
  5,851
  5,980
  6,112
  6,246
  6,383
Total operating expenses, $m
  4,895
  5,003
  5,118
  5,239
  5,366
  5,500
  5,641
  5,787
  5,941
  6,101
  6,227
  6,401
  6,583
  6,772
  6,969
  7,173
  7,387
  7,608
  7,839
  8,079
  8,328
  8,588
  8,858
  9,138
  9,429
  9,732
  10,048
  10,376
  10,716
  11,071
Operating income, $m
  1,406
  1,442
  1,493
  1,558
  1,637
  1,729
  1,835
  1,955
  2,089
  2,236
  2,440
  2,618
  2,811
  3,019
  3,245
  3,488
  3,748
  4,028
  4,326
  4,645
  4,986
  5,349
  5,734
  6,145
  6,581
  7,044
  7,535
  8,055
  8,607
  9,191
EBITDA, $m
  2,332
  2,389
  2,463
  2,554
  2,662
  2,786
  2,926
  3,083
  3,257
  3,449
  3,657
  3,884
  4,130
  4,395
  4,680
  4,985
  5,312
  5,662
  6,035
  6,433
  6,856
  7,306
  7,784
  8,291
  8,830
  9,400
  10,004
  10,644
  11,321
  12,037
Interest expense (income), $m
  358
  455
  475
  499
  526
  557
  590
  627
  668
  712
  759
  809
  863
  921
  982
  1,048
  1,117
  1,190
  1,268
  1,350
  1,437
  1,529
  1,626
  1,728
  1,835
  1,949
  2,068
  2,194
  2,326
  2,465
  2,611
Earnings before tax, $m
  951
  967
  995
  1,032
  1,080
  1,139
  1,208
  1,287
  1,377
  1,478
  1,631
  1,754
  1,890
  2,037
  2,197
  2,371
  2,558
  2,759
  2,976
  3,208
  3,457
  3,723
  4,007
  4,310
  4,632
  4,976
  5,341
  5,730
  6,142
  6,580
Tax expense, $m
  257
  261
  269
  279
  292
  307
  326
  348
  372
  399
  440
  474
  510
  550
  593
  640
  691
  745
  804
  866
  933
  1,005
  1,082
  1,164
  1,251
  1,343
  1,442
  1,547
  1,658
  1,777
Net income, $m
  694
  706
  726
  754
  789
  831
  882
  940
  1,005
  1,079
  1,191
  1,281
  1,379
  1,487
  1,604
  1,731
  1,867
  2,014
  2,173
  2,342
  2,524
  2,718
  2,925
  3,146
  3,382
  3,632
  3,899
  4,183
  4,484
  4,803

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  26,473
  27,082
  27,778
  28,559
  29,425
  30,375
  31,409
  32,529
  33,736
  35,030
  36,415
  37,893
  39,467
  41,139
  42,914
  44,795
  46,785
  48,890
  51,115
  53,463
  55,942
  58,555
  61,310
  64,212
  67,269
  70,488
  73,876
  77,440
  81,191
  85,136
Adjusted assets (=assets-cash), $m
  26,473
  27,082
  27,778
  28,559
  29,425
  30,375
  31,409
  32,529
  33,736
  35,030
  36,415
  37,893
  39,467
  41,139
  42,914
  44,795
  46,785
  48,890
  51,115
  53,463
  55,942
  58,555
  61,310
  64,212
  67,269
  70,488
  73,876
  77,440
  81,191
  85,136
Revenue / Adjusted assets
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
Average production assets, $m
  21,416
  21,908
  22,471
  23,103
  23,804
  24,572
  25,409
  26,315
  27,291
  28,338
  29,459
  30,654
  31,927
  33,280
  34,716
  36,237
  37,847
  39,550
  41,350
  43,250
  45,255
  47,369
  49,597
  51,945
  54,418
  57,022
  59,762
  62,646
  65,680
  68,872
Working capital, $m
  -13
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
Total debt, $m
  8,798
  9,238
  9,741
  10,306
  10,932
  11,619
  12,367
  13,177
  14,049
  14,985
  15,986
  17,055
  18,193
  19,402
  20,685
  22,044
  23,484
  25,006
  26,614
  28,312
  30,104
  31,993
  33,985
  36,083
  38,294
  40,621
  43,070
  45,647
  48,359
  51,211
Total liabilities, $m
  19,140
  19,580
  20,083
  20,648
  21,274
  21,961
  22,709
  23,519
  24,391
  25,327
  26,328
  27,397
  28,535
  29,744
  31,027
  32,386
  33,826
  35,348
  36,956
  38,654
  40,446
  42,335
  44,327
  46,425
  48,636
  50,963
  53,412
  55,989
  58,701
  61,553
Total equity, $m
  7,333
  7,502
  7,694
  7,911
  8,151
  8,414
  8,700
  9,011
  9,345
  9,703
  10,087
  10,496
  10,932
  11,396
  11,887
  12,408
  12,960
  13,543
  14,159
  14,809
  15,496
  16,220
  16,983
  17,787
  18,634
  19,525
  20,464
  21,451
  22,490
  23,583
Total liabilities and equity, $m
  26,473
  27,082
  27,777
  28,559
  29,425
  30,375
  31,409
  32,530
  33,736
  35,030
  36,415
  37,893
  39,467
  41,140
  42,914
  44,794
  46,786
  48,891
  51,115
  53,463
  55,942
  58,555
  61,310
  64,212
  67,270
  70,488
  73,876
  77,440
  81,191
  85,136
Debt-to-equity ratio
  1.200
  1.230
  1.270
  1.300
  1.340
  1.380
  1.420
  1.460
  1.500
  1.540
  1.580
  1.620
  1.660
  1.700
  1.740
  1.780
  1.810
  1.850
  1.880
  1.910
  1.940
  1.970
  2.000
  2.030
  2.060
  2.080
  2.100
  2.130
  2.150
  2.170
Adjusted equity ratio
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  694
  706
  726
  754
  789
  831
  882
  940
  1,005
  1,079
  1,191
  1,281
  1,379
  1,487
  1,604
  1,731
  1,867
  2,014
  2,173
  2,342
  2,524
  2,718
  2,925
  3,146
  3,382
  3,632
  3,899
  4,183
  4,484
  4,803
Depreciation, amort., depletion, $m
  926
  946
  970
  996
  1,025
  1,056
  1,091
  1,128
  1,169
  1,212
  1,217
  1,267
  1,319
  1,375
  1,435
  1,497
  1,564
  1,634
  1,709
  1,787
  1,870
  1,957
  2,049
  2,146
  2,249
  2,356
  2,470
  2,589
  2,714
  2,846
Funds from operations, $m
  1,620
  1,653
  1,696
  1,749
  1,813
  1,888
  1,973
  2,068
  2,174
  2,291
  2,408
  2,547
  2,699
  2,862
  3,039
  3,228
  3,431
  3,649
  3,881
  4,129
  4,394
  4,675
  4,974
  5,293
  5,630
  5,989
  6,369
  6,771
  7,198
  7,649
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  1,621
  1,653
  1,696
  1,750
  1,814
  1,888
  1,973
  2,069
  2,175
  2,292
  2,409
  2,548
  2,699
  2,863
  3,039
  3,229
  3,432
  3,650
  3,882
  4,130
  4,395
  4,676
  4,976
  5,294
  5,632
  5,990
  6,370
  6,773
  7,200
  7,651
Maintenance CAPEX, $m
  -868
  -885
  -905
  -929
  -955
  -984
  -1,015
  -1,050
  -1,087
  -1,128
  -1,171
  -1,217
  -1,267
  -1,319
  -1,375
  -1,435
  -1,497
  -1,564
  -1,634
  -1,709
  -1,787
  -1,870
  -1,957
  -2,049
  -2,146
  -2,249
  -2,356
  -2,470
  -2,589
  -2,714
New CAPEX, $m
  -421
  -493
  -563
  -632
  -700
  -769
  -837
  -906
  -976
  -1,047
  -1,120
  -1,196
  -1,273
  -1,353
  -1,436
  -1,521
  -1,610
  -1,703
  -1,799
  -1,900
  -2,005
  -2,114
  -2,228
  -2,348
  -2,473
  -2,604
  -2,741
  -2,884
  -3,034
  -3,191
Cash from investing activities, $m
  -1,289
  -1,378
  -1,468
  -1,561
  -1,655
  -1,753
  -1,852
  -1,956
  -2,063
  -2,175
  -2,291
  -2,413
  -2,540
  -2,672
  -2,811
  -2,956
  -3,107
  -3,267
  -3,433
  -3,609
  -3,792
  -3,984
  -4,185
  -4,397
  -4,619
  -4,853
  -5,097
  -5,354
  -5,623
  -5,905
Free cash flow, $m
  332
  275
  228
  189
  159
  136
  121
  113
  111
  116
  117
  135
  160
  191
  229
  273
  324
  383
  449
  522
  603
  692
  790
  896
  1,012
  1,138
  1,273
  1,420
  1,577
  1,746
Issuance/(repayment) of debt, $m
  379
  440
  503
  565
  626
  687
  748
  810
  872
  936
  1,001
  1,069
  1,138
  1,209
  1,283
  1,360
  1,439
  1,522
  1,608
  1,698
  1,792
  1,890
  1,992
  2,098
  2,210
  2,327
  2,449
  2,577
  2,712
  2,852
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  379
  440
  503
  565
  626
  687
  748
  810
  872
  936
  1,001
  1,069
  1,138
  1,209
  1,283
  1,360
  1,439
  1,522
  1,608
  1,698
  1,792
  1,890
  1,992
  2,098
  2,210
  2,327
  2,449
  2,577
  2,712
  2,852
Total cash flow (excl. dividends), $m
  711
  716
  731
  754
  785
  823
  869
  922
  984
  1,053
  1,118
  1,204
  1,297
  1,400
  1,512
  1,633
  1,764
  1,905
  2,057
  2,220
  2,395
  2,582
  2,782
  2,995
  3,222
  3,465
  3,723
  3,997
  4,288
  4,598
Retained Cash Flow (-), $m
  -149
  -169
  -193
  -216
  -240
  -263
  -287
  -310
  -334
  -359
  -384
  -409
  -436
  -463
  -492
  -521
  -551
  -583
  -616
  -651
  -686
  -724
  -763
  -804
  -847
  -892
  -938
  -987
  -1,039
  -1,093
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  562
  547
  538
  538
  545
  560
  582
  612
  649
  694
  735
  794
  862
  937
  1,020
  1,112
  1,212
  1,322
  1,441
  1,569
  1,708
  1,858
  2,019
  2,191
  2,376
  2,573
  2,784
  3,009
  3,250
  3,505
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  523
  469
  423
  384
  350
  321
  295
  272
  249
  228
  204
  183
  163
  144
  125
  106
  89
  73
  59
  47
  36
  27
  20
  14
  10
  7
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Ameren Corporation is a utility holding company. The Company's subsidiaries include Ameren Missouri, Ameren Illinois and Ameren Transmission Company (ATXI). It operates through four segments. The Ameren Missouri segment includes all of the operations of Ameren Missouri. The Ameren Illinois Electric Distribution segment consists of the electric distribution business of Ameren Illinois. The Ameren Illinois Natural Gas segment consists of the natural gas business of Ameren Illinois. The ATXI segment consists of the aggregated electric transmission businesses of Ameren Illinois and ATXI. Ameren Missouri operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri. Ameren Illinois operates rate-regulated electric distribution, electric transmission and natural gas distribution businesses in Illinois. ATXI operates a Federal Energy Regulatory Commission rate-regulated electric transmission business.

FINANCIAL RATIOS  of  Ameren (AEE)

Valuation Ratios
P/E Ratio 24.1
Price to Sales 2.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow -1964.5
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.2%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 92.8%
Total Debt to Equity 110.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 9.3%
Return On Equity - 3 Yr. Avg. 9.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 36.8%
EBITDA Margin - 3 Yr. Avg. 34.6%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 21.4%
Pre-Tax Margin 17.1%
Pre-Tax Margin - 3 Yr. Avg. 16.2%
Net Profit Margin 10.7%
Net Profit Margin - 3 Yr. Avg. 10.3%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 38%
Payout Ratio 63.7%

AEE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEE stock intrinsic value calculation we used $6177 million for the last fiscal year's total revenue generated by Ameren. The default revenue input number comes from 0001 income statement of Ameren. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AEE stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.6%, whose default value for AEE is calculated based on our internal credit rating of Ameren, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Ameren.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AEE stock the variable cost ratio is equal to 23.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3323 million in the base year in the intrinsic value calculation for AEE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Ameren.

Corporate tax rate of 27% is the nominal tax rate for Ameren. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AEE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AEE are equal to 339.9%.

Life of production assets of 24.2 years is the average useful life of capital assets used in Ameren operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AEE is equal to -0.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $7184 million for Ameren - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 244.04 million for Ameren is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Ameren at the current share price and the inputted number of shares is $15.8 billion.

Management's discussion and analysis

Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005. Ameren’s primary assets are its equity interests in its subsidiaries, including Ameren Missouri, Ameren Illinois, and ATXI. Ameren’s subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. Dividends on Ameren’s common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries.

Below is a summary description of Ameren's principal subsidiaries. Ameren also has various other subsidiaries that conduct other activities, such as the provision of shared services. A more detailed description can be found in Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report.

   

Ameren Missouri operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri.

   

Ameren Illinois operates rate-regulated electric distribution, electric transmission and natural gas distribution businesses in Illinois.

   

ATXI operates a FERC rate-regulated electric transmission business. ATXI is developing MISO-approved electric transmission projects, including the Illinois Rivers, Spoon River, and Mark Twain projects. ATXI is also evaluating competitive electric transmission investment opportunities outside of MISO as they arise.

Unless otherwise stated, the following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations exclude discontinued operations for all periods presented. See Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report for additional information regarding that presentation.

Ameren's financial statements are prepared on a consolidated basis and therefore include the accounts of its majority-owned subsidiaries. All intercompany transactions have been eliminated. Ameren Missouri and Ameren Illinois have no subsidiaries. All tabular dollar amounts are in millions, unless otherwise indicated.

In addition to presenting results of operations and earnings amounts in total, we present certain information in cents per share. These amounts reflect factors that directly affect Ameren’s earnings. We believe this per share information helps readers to understand the impact of these factors on Ameren’s earnings per share. All references in this report to earnings per share are based on average diluted common shares outstanding for the relevant period.

OVERVIEW

Ameren’s strategic plan includes investing in and operating its utilities in a manner consistent with existing regulatory frameworks, enhancing those frameworks and advocating for responsible energy and economic policies, as well as creating and capitalizing on opportunities for investment for the benefit of 

its customers and shareholders. In 2016, Ameren successfully executed its strategy. Ameren continued to allocate significant amounts of capital to those businesses that are supported by constructive regulatory frameworks. In 2016, Ameren invested $1.3 billion of capital expenditures in its FERC rate-regulated electric transmission and Illinois electric and natural gas distribution businesses.

In 2016, Ameren continued to work to enhance its regulatory frameworks and advocate for responsible energy and economic policies and to create and capitalize on opportunities for investment for the benefit of its customers and shareholders. Ameren Illinois successfully advocated for the FEJA, which improved the constructive regulatory framework for Ameren Illinois' electric distribution business. The FEJA revised certain portions of the IEIMA, including extending the IEIMA formula ratemaking process through 2022. Also, beginning in 2017, the FEJA decouples electric distribution revenues established in a rate proceeding from actual sales volumes by providing that any revenue changes driven by actual electric distribution sales volumes differing from sales volumes reflected in that year's rates will be collected from or refunded to customers within two years. This portion of the law extends beyond the end of the IEIMA in 2022. Further, beginning as early as June 2017, the FEJA will allow Ameren Illinois to capitalize as a regulatory asset and earn a return on its electric energy efficiency investments.

In July 2016, Ameren Missouri filed a request with the MoPSC seeking approval to increase its annual revenues for electric service. Relating to that request, in February 2017, Ameren Missouri, the MoPSC staff, the MoOPC, and all intervenors filed a unanimous stipulation and agreement with the MoPSC. The stipulation and agreement, which is subject to MoPSC approval, would result in a $3.4 billion revenue requirement, which is a $92 million increase in Ameren Missouri’s annual revenue requirement for electric service compared to its prior revenue requirement established in the MoPSC's April 2015 electric rate order. The stipulation and agreement did not specify the common equity percentage, the rate base, or the allowed return on common equity. The new revenue requirement reflects the current actual sales volumes of the New Madrid Smelter, whose operations remain suspended, as well as other agreed upon sales volumes. Excluding cost reductions associated with reduced sales volumes, the base level of net energy costs under the stipulation and agreement would decrease by $54 million from the base level established in the MoPSC's April 2015 electric rate order. Changes in amortizations and the base level of expenses for the other regulatory tracking mechanisms, including extending the amortization period of certain regulatory assets, would reduce expenses by $26 million from the base levels established in the MoPSC's April 2015 electric rate order. The stipulation and agreement contemplates that new rates will become effective on or before March 20, 2017.

Related to ATXI's and Ameren Illinois' FERC rate-regulated transmission businesses, in September 2016, the FERC issued a final order in the November 2013 complaint case which lowered the total allowed return on common equity to 10.82%. The new 

allowed return on common equity has been reflected in rates prospectively from the September 2016 effective date of the order. The FERC is expected to issue a final order in the February 2015 complaint case in the second quarter of 2017. That final order will determine the allowed return on common equity for the 15-month period ended May 2016. That final order will also establish the allowed return on common equity that will apply prospectively from its expected second quarter 2017 effective date, replacing the current 10.82% total return on common equity, which became effective in September 2016.

In October 2016, Ameren’s board of directors increased the quarterly common stock dividend to 44 cents per share, resulting in an annualized equivalent dividend rate of $1.76 per share.

Earnings

Net income attributable to Ameren common shareholders from continuing operations was $653 million, or $2.68 per diluted share, for 2016, and $579 million, or $2.38 per diluted share, for 2015. These earnings were favorably affected in 2016, compared with 2015, by increased Ameren Transmission and Ameren Illinois Electric Distribution earnings, reflecting Ameren’s strategy to allocate incremental capital to those businesses, increased demand due to warmer summer temperatures, higher natural gas distribution rates at Ameren Illinois pursuant to a December 2015 order, and decreased other operations and maintenance expenses. Net income was also favorably affected in 2016, compared with 2015, by an income tax benefit recorded in 2016 at Ameren (parent) pursuant to the adoption of new accounting guidance related to share-based compensation, as well as the absence of a provision recognized in 2015 as a result of Ameren Missouri’s discontinued efforts to license and build a second nuclear unit at its existing Callaway energy center site. Net income was unfavorably affected in 2016, compared with 2015, by the absence in 2016 of MEEIA 2013 net shared benefits, partially offset by the recognition of a MEEIA 2013 performance incentive, decreased Ameren Missouri sales to the New Madrid Smelter resulting from a reduction in operations at that plant, and the cost of the Callaway energy center’s scheduled refueling and maintenance outage. Additionally, earnings were unfavorably affected in 2016, compared with 2015, by increased depreciation and amortization expenses at Ameren Missouri, the absence in 2016 of a January 2015 ICC order regarding Ameren Illinois’ cumulative power usage cost and its purchased power rider mechanism, and decreased Ameren Missouri electric margins resulting from increased transmission charges, net of transmission revenues.

Liquidity

At December 31, 2016, Ameren, on a consolidated basis, had available liquidity in the form of amounts available under credit agreements of $1.5 billion.

Capital Expenditures

In 2016, Ameren continued to make significant investment in its utility businesses by making capital expenditures of $0.7 billion, $0.5 billion, $0.2 billion, and $0.7 billion in Ameren 

Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, respectively. For 2017 through 2021, Ameren's cumulative capital expenditures are projected to range from $10.4 billion to $11.2 billion. The projected spending by segment includes up to $4.2 billion, $2.6 billion, $1.5 billion, and $2.9 billion for Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, respectively.

RESULTS OF OPERATIONS

Our results of operations and financial position are affected by many factors. Weather, economic conditions, energy efficiency investments by our customers and us, and the actions of key customers can significantly affect the demand for our services. Our results are also affected by seasonal fluctuations in winter heating and summer cooling demands. Ameren and Ameren Missouri are also affected by nuclear refueling and other energy center maintenance outages. Additionally, fluctuations in interest rates and conditions in the capital and credit markets affect our cost of borrowing and our pension and postretirement benefits costs. Almost all of Ameren’s revenues are subject to state or federal regulation. This regulation has a material impact on the prices we charge for our services. Our results of operations, financial position, and liquidity are affected by our ability to align our overall spending, both operating and capital, with regulatory frameworks established by our regulators.

Ameren Missouri principally uses coal, nuclear fuel, and natural gas for fuel in its electric operations and purchases natural gas for its customers. Ameren Illinois purchases power and natural gas for its customers. The prices for these commodities can fluctuate significantly because of the global economic and political environment, weather, supply, demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas distribution service businesses, a purchased power cost recovery mechanism for Ameren Illinois' electric distribution service business, and a FAC for Ameren Missouri's electric utility business.

Ameren Illinois' electric distribution service utility business, pursuant to the IEIMA, conducts an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement included in customer rates for that year. Recoveries from or refunds to customers occur in a subsequent year. Included in Ameren Illinois' revenue requirement reconciliation is a formula for the return on equity, which is equal to the average of the monthly yields of 30-year United States Treasury bonds plus 580 basis points. Therefore, Ameren Illinois' annual return on equity is directly correlated to yields on United States Treasury bonds. Ameren Illinois and ATXI use a company-specific, forward-looking rate formula framework in setting their transmission rates. These rates are updated each January with forecasted information. A reconciliation during the year, which adjusts for the actual revenue requirement and actual sales volumes, is used to adjust billing rates in a subsequent year.

Ameren Illinois’ and ATXI’s electric transmission service businesses and Ameren Illinois’ electric distribution service business operate under formula ratemaking designed to provide for the recovery of actual costs of service that are prudently incurred as well as a return on equity. Although rate-regulated, Ameren Illinois’ natural gas business and Ameren Missouri do not operate under formula ratemaking. Ameren (parent) is not rate-regulated.

We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our business. The reliability of Ameren Missouri's energy centers and our transmission and distribution systems and the level of purchased power costs, operations and maintenance costs, and capital investment are key factors that we seek to manage in order to optimize our results of operations, financial position, and liquidity.

During the fourth quarter of 2016, the Ameren Companies changed the manner in which performance is assessed and resources are allocated, driven by increasing investment in FERC-regulated electric transmission and Ameren Illinois electric distribution and natural gas distribution businesses, as well as the unique regulatory environment for each jurisdiction. Ameren now has four segments: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, which primarily includes Ameren Illinois Transmission and ATXI. Ameren Missouri has one segment, which includes all of the operations of Ameren Missouri. Ameren Illinois has three segments: Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Illinois Transmission. Prior-period presentation has been adjusted for comparative purposes. See Note 16 – Segment Information under Part II, Item 8, of this report for further discussion of Ameren’s, Ameren Missouri's, and Ameren Illinois' segments.

Earnings Summary

The following table presents a summary of Ameren's earnings for the years ended December 31, 2016, 2015, and 2014:

 

2016

 

2015

 

2014

Net income attributable to Ameren common shareholders

$

653

   

$

630

   

$

586

 

Earnings per common share – diluted

2.68

   

2.59

   

2.40

 

Net income attributable to Ameren common shareholders – continuing operations

653

   

579

   

587

 

Earnings per common share – diluted – continuing operations

2.68

   

2.38

   

2.40

 

2016 versus 2015

Net income attributable to Ameren common shareholders from continuing operations in 2016 increased $74 million, or $0.30 per diluted share, from 2015. The increase was due to net income increases of $34 million, $22 million, $5 million, and $3 million at Ameren Transmission, Ameren Illinois Natural Gas, Ameren Missouri, and Ameren Illinois Electric Distribution,

respectively. Additionally, the net loss from other businesses, primarily Ameren (parent), and intersegment eliminations decreased $10 million.

In 2015, net income attributable to Ameren common shareholders from discontinued operations was favorably affected by the recognition of a tax benefit resulting from the removal of a reserve for unrecognized tax benefits of $53 million recorded in 2013 related to the divestiture of New AER, based on the completion of the IRS audit of Ameren’s 2013 tax year.

Compared with 2015, 2016 earnings per share from continuing operations were favorably affected by:

   

increased Ameren Transmission earnings under formula ratemaking, primarily due to additional rate base investment. Ameren Transmission earnings also benefited from a temporarily higher allowed return on common equity, recognizing an allowed return on common equity of 12.38% for nearly four months in 2016 as a result of the expiration of the refund period in the February 2015 complaint case (19 cents per share);

   

the absence of a provision recognized in the second quarter of 2015 as a result of Ameren Missouri’s discontinued efforts to license and build a second nuclear unit at its existing Callaway energy center site (18 cents per share);

   

increased demand due to warmer summer temperatures in 2016, partially offset by milder winter temperatures (estimated at 15 cents per share);

   

higher natural gas distribution rates at Ameren Illinois pursuant to a December 2015 order (11 cents per share);

   

an income tax benefit recorded at Ameren (parent) pursuant to the adoption of new accounting guidance related to share-based compensation (9 cents per share);

   

decreased other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms at Ameren Missouri (7 cents per share). This was due, in part, to a reduction in energy center maintenance costs, excluding the cost of the Callaway energy center's scheduled refueling and maintenance outage (discussed below) and reduced electric distribution maintenance expenditures; and

   

increased Ameren Illinois Electric Distribution earnings under formula ratemaking, primarily due to additional rate base investment partially offset by a lower return on equity resulting from a reduction in the 30-year United States Treasury bond yields (2 cents per share).

Compared with 2015, 2016 earnings per share from continuing operations were unfavorably affected by:

   

the absence in 2016 of MEEIA net shared benefits due to the expiration of MEEIA 2013, partially offset by the recognition of a MEEIA 2013 performance incentive (15 cents per share);

   

decreased Ameren Missouri sales to the New Madrid Smelter resulting from a reduction in operations at the smelter (15 cents per share);

   

the cost of the Callaway energy center's scheduled refueling and maintenance outage in 2016. There was no Callaway refueling and maintenance outage in 2015 (7 cents per share);

increased depreciation and amortization expenses not subject to riders or regulatory tracking mechanisms at Ameren Missouri primarily because of electric system capital additions (4 cents per share);

   

decreased Ameren Illinois Electric Distribution earnings resulting from the absence in 2016 of a January 2015 ICC order regarding Ameren Illinois’ cumulative power usage cost and its purchased power rider mechanism (4 cents per share);

   

decreased Ameren Missouri electric margins resulting from increased transmission charges, net of transmission revenues (3 cents per share); and

   

increased other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms at Ameren Illinois Natural Gas, primarily due to increased repairs and compliance expenditures (2 cents per share).

The cents per share information presented above is based on the diluted average shares outstanding in 2015. Pretax amounts have been presented net of income taxes, using Ameren's 2015 statutory tax rate of 39%.

[Source: Form 10-K dated 2017-02-28]

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COMPANY NEWS

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▶ Amerens Missouri electric customers to see rate cut   [Jul-31-18 03:53PM  American City Business Journals]
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