Saudi Aramco: A Valuation in Excess of $1.4 Trillion is Simply Too Much (And That Might be Generous!
Updated: Jul 19, 2020
I have done some high level work on the Saudi Aramco (“Aramco”) IPO, some with reference to the five international oil companies (“IOC’s”) that both Aramco and analysts refer to in their pre-offer materials and in the analysis / research that is available. Let me admit up-front that I am far from an expert on the energy industry and have not read the full offering document cover-to-cover, but nonetheless, I have concluded two things based on the research I have done to date. Firstly, Saudi Aramco is a large and extremely solid company as far as its production capacity, reserve base, liquidity, overall financial metrics, and shareholder (i.e. government) support. Aside from risks associated with most of its reserves and refining assets being based in Saudi Arabia - a volatile region - there will, with little doubt, be a strong “going-concern” business here for many, many years. Secondly though, in spite of the press saying that the IPO will likely come with an implied valuation of $1.6 trillion to $1.7 trillion, I think this is a Saudi investor “clearing bid’, meaning it is too high for professional international investors. Based on the work and research I have done, I do not think that the shares will perform well in the secondary market at a valuation at IPO in excess of $1.4 trillion. If this offering is deemed a “must have”, I think investors should wait until the secondary market price settles so they can then buy the shares at a lower price. I have provided more details on my rationale in an article that I published 17 November on LinkedIn. Check it out - I hope you find it insightful.