Riyadh-based brokerage Al Rajhi Capital has raised Saudi Aramco's target price to 42 riyals per share from 37 riyals earlier.

The brokerage believes that for 2022, the company will maintain dividend at 1.4 riyals per share, although it can potentially increase to 1.7 riyals per share, it said in a note on Tuesday.

"This is because we believe the company is driven by longer-term goals and is likely to exhibit resilience and stability."

Al Rajhi Capital's Mazen Al-Sudairi said: "We believe we are still far away from the peak of oil demand globally, which could be upwards of 110mmbpd by 2030 by which Aramco could increase its market share to 10%, to 11mmpbd."

The investment bank said it has shifted to the discounted cash flow method (DCF) valuation method to capture this growth versus an implied dividend yield method earlier.

Going forward, it expects Aramco to continue to generate robust cash flows, driven by:

  • Strong oil prices aided by the healthy oil demand amid the potential oil shortage on geopolitical concerns
  • Gradual rise in production as per the agreed output quota
  • Healthy refining and chemical margins
  • Improved cost efficiencies/synergies (already realized about $1.6bn in 18 months after closing the SABIC deal; targeted synergies: $3-4bn)

(Reporting by Brinda Darasha; editing by Daniel Luiz)