Analyst research gives wide range for Aramco valuation


Saudi Aramco officially kicked off its IPO on Sunday, saying that that it plans to list its shares in Riyadh.

At that price, Aramco would still be worth at least 50% more than the most valuable company in the world, Microsoft and Apple, each of which has a market capitalization of around $ 1 trillion. It's well below the $2 trillion target that was set by Mohammed bin Salman as they struggle to pinpoint a precise valuation.

The initial public offering of Saudi Aramco is chugging forward as the world's largest initial public offering (IPO).

Analysts provided wide valuation estimates for Saudi Aramco, ranging between $1.2 trillion and $2.3 trillion, fund managers who have seen research notes said, as the oil giant kick-started its initial public offering (IPO) on the local bourse. Until now, the world's biggest IPO has been that of Chinese ecommerce company Alibaba in 2014, which raised $25bn.

The banks were not immediately available for comment. Credit Suisse's research offers a similarly wide range in value, one of the fund managers said.

Despite making an announcement about the IPO, the firm maintained silence with respect to other details like the launch date, number of shares sold and pricing of shares.

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The oil giant earned net income of $68.2 billion compared with $83.1 billion for the same period a year ago, it said in a statement posted on its website.

In 2016, when the oil price hit 13-year lows, Aramco's net income was only $13 billion, according to a company bond prospectus this year, compared to $111 billion in 2018.

BOFA Merrill's research is based on the discounted-cash-flow model, a valuation methodology that uses future cash flow, according to one fund manager who saw the research.

EFG Hermes research implies a 2020 estimated enterprise value to EBITDA ratio of 6.9 times to 9.4 times, a price-to earnings ratio of 14.5 times to 19.5 times, and a dividend yield of 3.9% to 5.3%.

"Our view is that an aspirational $2 trillion valuation is extremely high from a fundamentals perspective", Kapadia said.