|12 December, 2019

What's next for Saudi Aramco after hitting $2trln valuation?

Aramco's shares rose 10% in early trading on Thursday

Amin H. Nasser, President and CEO of Aramco, attends the official ceremony marking the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019. Saudi Aramco Website REUTERS/Handout via REUTERS

Amin H. Nasser, President and CEO of Aramco, attends the official ceremony marking the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019. Saudi Aramco Website REUTERS/Handout via REUTERS

Saudi Aramco’s shares closed 4.55 percent higher on Thursday, hitting 36.8 Saudi riyals ($9.81), giving the oil giant a valuation of $1.96 trillion.

The state-owned company’s shares had risen 10 percent in early trading, peaking at 38.7 riyals, to briefly nudge its market value above the $2 trillion target sought by Crown Prince Mohammed bin Salman.

“What we saw today were mainly retail orders,” Marie Salem, Head of Institutions at Dubai-based Daman Securities told Zawya.

On their debut on Wednesday, Aramco’s shares had gained the maximum permitted limit of 10 percent above their IPO price and closed at 35.2 riyals with a market value of $1.88 trillion.

The Aramco IPO now holds the title of the world’s largest, as the $25.6 billion it raised last week surpassed the $25 billion record set by China’s Alibaba in 2014.

“We expect the value to stabilise around $2 trillion within the coming week or two. We also expect to see more volumes on the stock going forward as institutionals start to enter the stock following its MSCI inclusion,” Salem added.

MSCI said Saudi Aramco would be included in its indexes with effect from December 18. Aramco’s inclusion will be completed in a single phase based on the stock’s closing price (35.2 riyals) on the first day of trading.

Arun Leslie John, Chief Market Analyst at Century Financial told Zawya that one of the biggest factors influencing Aramco's shares in the next couple of months would be the oil price.

“OPEC’s decision to reduce output by 500,000 barrels per day takes the total amount of cuts to 1.7 million barrels per day or almost 1.7 percent of the global demand. On top of that Saudi Arabia has decided to extend its voluntary output restriction of 400,000 barrels per day, so that the total OPEC production curb is now 2.1 million barrels per day. This should help put a floor on the oil price and help Aramco rally,” John said.

“Valuation-wise Aramco is stretched as it is trading at approximately 21.7 times its 2019 earnings. Only a rally in crude oil can give a further leg up to the shares,” he added.

The oil company, which produces more than a tenth of global crude supply, made profits of $46.9 billion in the first six months of 2019, down from $53.2 billion for the same period last year.

(Writing by Gerard Aoun; editing by Anoop Menon)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2019

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