Saudi Aramco's solid Q1 performance likely to translate into record dividends

BofA says fundamentals priced in, maintains Neutral rating

  
A man signs on aboard 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.

A man signs on aboard 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

Saudi Aramco’s Q1 2021 net profit, which saw a 30 percent jump, anticipates a strong quarter for East Europe Middle East and Africa (EEMEA) oil, where robust results should translate into record dividends, BofA said in a note analyzing the results.  

Aramco delivered “a solid beat on Q1 numbers surpassing consensus and our NI (net income) and FCF (free cash flows) estimates by more than 10 percent,” the note said.

On Tuesday, Aramco posted a net income of $21.7 billion for the quarter, compared to $16.7 billion in Q1 2020. The oil producer was expected to post a net profit of $19.48 billion, Reuters reported citing average estimates from five analysts.

BofA said Aramco's FCF of $18.3 billion was 15 percent higher than expected and almost covered Aramco's quarterly dividend of $18.75 billion.

“Solid performance on the bottom line and FCF is very likely to translate into much higher dividend yields, in our view,” analyst Karen Kostanian said.

The jump in FCF was helped “by lower than expected capex which was partially mitigated by a build-up in working capital.”

It said that Aramco's solid numbers were supported by:

  • 20 percent increase in oil prices, mitigated by Saudi voluntary production cuts
  • stronger downstream and petchem margins
  • lower taxes on the back of tax lag effect and higher downstream realizations.

As the oil giant’s “very impressive fundamentals are already priced in,” BofA Global Research said it has maintained a Neutral rating on the shares.

However, it has raised the price objective on Aramco stock to 36 riyals ($9.60), a 1.7 percent upside on the current share price of 35.40 riyals.

(Writing by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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