Give or take a trillion: Investors in the dark on Saudi Aramco value

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By Saeed Azhar, Stanley Carvalho and Ron Bousso

(Reuters) – Saudi Aramco’s blockbuster listing remained shrouded in mystery on Monday, a day after the company finally announced its plans, with scant details disclosed and expert valuations varying wildly from around $1.2 to $2.3 trillion.

The state oil giant, the world’s most profitable company, fired the starting gun on a domestic initial public offering (IPO) on Sunday after a series of false starts that had kept the investment world guessing.

However potential investors, already rattled by a crippling attack on Aramco’s facilities in September, were not given key details usually included in such “intention to float notices” – such as how much of the company will be sold, and when the sale will happen.

Now fund managers are poring over bank research about the famously secretive company, but little certainty has been provided by even analysts from the Wall Street giants with roles in the Riyadh bourse listing, five sources told Reuters.

Graphic: Chart showing estimated valuations ranges by bank analysts,

Crown Prince Mohammed bin Salman has said he wants a $2 trillion valuation, seeking to raise billions of dollars in the IPO to diversify the Saudi economy away from oil by investing in non-energy industries.

That figure is almost twice that of Microsoft (N:), currently the world’s most valuable listed company and seven times that of Exxon Mobil Corp (N:), the most valuable listed oil major by market cap.

Analysts from banks working on the deal have met with Aramco’s management in Dhahran over the past month to get more information on the company, but their valuations of Aramco still vary by around $1 trillion.

Bank of America Merrill Lynch (NYSE:) has a range of $1.2 trillion to $2.3 trillion while EFG Hermes says $1.55 trillion to $2.1 trillion, two fund managers who have seen the research reports said.

Goldman Sachs (NYSE:) – one of the IPO coordinators – has put the company’s valuation between $1.6 trillion and $2.3 trillion, two separate sources said. Credit Suisse’s research offers a similarly wide range in value, one of the fund managers said.

A major factor in the wide range is the various assumptions analysts are making for the future direction of oil prices, said a source familiar with the deal.

The banks were not immediately available for comment.

Sources have told Reuters that Aramco could offer 1%-2% of its shares, raising as much as $20 billion to $40 billion. A deal over $25 billion would top the record-breaking IPO of Chinese e-commerce giant Alibaba (N:) in 2014.

Aramco Chairman Yasir al-Rumayyan said a decision on an international listing would be made in the future, without giving a timeframe or venue.


Aramco did provide investors with some extra financial information on Sunday and Monday, including its detailed nine-month earnings, which showed net income fell to $68.2 billion by the end of September 30, down from $83.1 billion a year earlier.

The company did not give any reason for the fall in earnings, but it likely reflects lower oil prices compared with 2018.

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.

Its net income for the third quarter of 2019 amounted to $21.1 billion, according to Reuters calculations. By contrast, Exxon Mobil’s income for the same period was just over $3 billion.

Aramco said it did not expect the Sept. 14 attacks, which targeted plants at the heart of Saudi Arabia’s oil industry and initially halved its production, would have a material impact on its business, operations and financial condition.

However the attacks underlined the potential political risk associated with the state company. Saudi Arabia blamed regional arch-rival Iran, a charge rejected by Tehran.

The analysts’ roadshow for Aramco, where analysts from banks working on the IPO speak to investors, began in the Middle East on Sunday and will run for a fortnight, a source familiar with the deal said, adding 26 to 27 analysts would be in different parts of the world at different times.

Roadshows involving senior management will begin after the analysts’ investor meetings the source said, adding pricing was likely to be announced around Nov. 28.

Other roadshow locations are Japan, China and the usual suspects – London, New York, Boston, Hong Kong and Singapore, said another source close to the deal.


Legal & General Investment Management, one of Britain’s biggest asset managers, has not yet decided whether to invest in Aramco, its chief investment officer Sonja Laud told the Reuters Global Investment Outlook Summit on Monday. She added “concerns from a corporate governance viewpoint are well-flagged”.

The close relationship between the crown prince and new Aramco chairman Rumayyan, who also heads the kingdom’s sovereign wealth fund, was a governance concern for some investors, sources have previously said.

The wealth fund will use the proceeds of the IPO to deliver on the prince’s ambitious domestic and economic reforms.

Among other expert valuations for Saudi Aramco, Bernstein analysts estimate “a fair value range” is $1.2 trillion to $1.5 trillion.

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%.

Other analysts were more conservative.

A more reasonable valuation is around $1 trillion, said Anish Kapadia, head of London-based independent oil and mining advisory Palissy Advisors.

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

Graphic: Aramco vs Oil Majors first-half 2019 profits,

Graphic: Aramco vs oil majors market cap,

(additional reporting by Davide Barbuscia in Dubai, Abhinav Ramnarayan in London and Scott Murdoch in Hong Kong; Editing by Jason Neely and Pravin Char)