Analyst research gives wide range for Aramco valuation: sources

November 04, 2019

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A sign of Saudi Aramco's initial public offering (IPO) is seen during a news conference by the state oil company at the Plaza Conference Center in Dhahran, Saudi Arabia on November 3, 2019. — Reuters
A sign of Saudi Aramco's initial public offering (IPO) is seen during a news conference by the state oil company at the Plaza Conference Center in Dhahran, Saudi Arabia on November 3, 2019. — Reuters

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.

Bank analysts started showing IPO research to fund managers soon after Aramco, the world's most profitable company, on Sunday announced its intention to float on the domestic bourse in what could be the world's biggest listing.

The research reports highlight the challenge faced in hitting Saudi Crown Prince Mohammed bin Salman's initial valuation target of $2 trillion for the world's largest oil producer, with some banks having said it could be about $1.5 trillion.

Bank of America (BOFA) Merrill Lynch estimates Aramco's valuation could range from a low of $1.2 trillion to a high of $2.3 trillion, while EFG Hermes has an equity valuation of $1.55 trillion to $2.1 trillion, two fund managers who have seen the research reports told Reuters.

The banks were not immediately available for comment.

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.

Credit Suisse's research also has similar wide ranges, the fund manager said.

"These ranges are always wide as research analysts want to cover both low end and high end so you want to show sensitivity of assumptions," one analyst said.

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 per cent to 5.3pc.

Aramco's long-awaited announcement on Sunday did not disclose the number of shares to be sold, pricing or the date for a launch.

Sources have told Reuters that Aramco could offer 1-2pc of its shares on the Riyadh exchange, raising as much as $20 billion to $40 billion. A deal over $25 billion would top the record-breaking one of Chinese e-commerce giant Alibaba in 2014.