Al Rajhi Capital raises Aramco target price to SAR 35/share

Dividend prioritization renders valuation mostly unaffected by volatile oil prices

  
Investors monitor a screen displaying stock information at the Saudi Stock Exchange (Tadawul) following the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019.

Investors monitor a screen displaying stock information at the Saudi Stock Exchange (Tadawul) following the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019.

REUTERS/Ahmed Yosri

As Aramco's unique dividend arrangement makes its value broadly unaffected by current volatility in oil price, holding the stock could give a much-desired stability in these uncertain times, said Al Rajhi Capital in a new report.

This is because Aramco’s dividend prioritization of pro rata $75 billion for 2020-24 to non-government shareholders which comes to approximately $1.3 billion  based on calculations, is easily manageable given Aramco’s extremely low cost of production, it noted.

This implies a dividend yield of about 5 percent based on a traded price of 31.95 as on Monday.

Al Rajhi Capital has raised the target price for Aramco to 35 Saudi riyals per share. The stock was initiated at a fair price of 37.50 riyals per share in January. 

The report says that oil production cuts--the focus of a key meeting OPEC members and allied producers on Thursday--are less material to Aramco’s valuation.

“We are more fixated on the number of firms that will be applying for bankruptcy and the pace of increase in Aramco’s market share. Aramco has promised pumping production to 12.3 million barrels per day by April and has already started pumping close to that.”

Key downside risk to the valuation is a surge in interest rates “which looks unlikely at this point in time.” Other risk factors to our estimates are lower-than-expected dividends, geopolitical tensions, delay in recovery in oil prices and further slowdown in global economy.

(Writing by Brinda Darasha, editing by Seban Scaria)

(seban.scaria@refinitiv.com)

#SAUDI #ARAMCO #ALRAJHI

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