ILA: Initiating Coverage of a Pure-Play Energy Merchant

* We initiate coverage of Aquila, Inc. with a 1H (Buy, High Risk)
rating and a 12-month price target of $44.
* Aquila is a pure-play Energy Merchant, leveraging their strong
trading and risk management skills in the rapidly growing energy commodity
markets.  Aquila was an early mover into these deregulating markets, and has
shown strong traction over recent years, which we believe is sustainable
long-term.
* We project a 20-25% growth rate for ILA driven by our robust outlook
for wholesale energy and the potential for successful expansion into new
commodities and geographies.
* At a 2002 0.7x P/E-to-growth (PEG) ratio, ILA is trading at a
significant discount to their Energy Merchant peer average of 1.0x. Based on
its strong track record and potential for industry-leading earnings growth,
we place a PEG value on ILA of 1.0x 2002 earnings, leading to our $44 price
target.

 <<ILA launch note5-18-01.pdf>>  <<ILA launch note5-18-01.doc>>

Raymond C. Niles
Power/Natural Gas Research
Salomon Smith Barney
(212) 816-2807
ray.niles@ssmb.com

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 - ILA launch note5-18-01.pdf
 - ILA launch note5-18-01.doc