Analyst research gives wide range for Aramco valuation: sources

[DUBAI] Analysts provided wide valuation estimates for Saudi Aramco, ranging between US$1.2 trillion and US$2.3 trillion, fund managers who have seen research notes said, as the oil giant kick-started its initial public offering (IPO) on the local bourse.

Bank analysts started showing IPO research to fund managers soon after Aramco, the world's most profitable company, on Sunday announced its intention to float on the domestic bourse in what could be the world's biggest listing.

The research reports highlight the challenge faced in hitting Saudi Crown Prince Mohammed bin Salman's initial valuation target of US$2 trillion for the world's largest oil producer, with some banks having said it could be about US$1.5 trillion.

Bank of America estimates Aramco's valuation could range from a low of US$1.2 trillion to a high of US$2.3 trillion, while EFG Hermes has an equity valuation of US$1.55 trillion to US$2.1 trillion, two fund managers who have seen the research reports told Reuters.

The banks were not immediately available for comment.

Bank of America's research is based on the discounted-cash-flow model, a valuation methodology that uses future cash flow, according to one fund manager who saw the research.

Credit Suisse's research also has similar wide ranges, the fund manager said.

"These ranges are always wide as research analysts want to cover both low end and high end so you want to show sensitivity of assumptions," one analyst said.

EFG Hermes research implies a 2020 estimated enterprise value to Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratio of 6.9 times to 9.4 times, a price-to earnings ratio of 14.5 times to 19.5 times, and a dividend yield of 3.9 per cent to 5.3 per cent.

Aramco's long-awaited announcement on Sunday did not disclose the number of shares to be sold, pricing or the date for a launch.

Sources have told Reuters Aramco could offer 1-2 per cent of its shares on the Riyadh exchange, raising as much as US$20 billion to US$40 billion. A deal over US$25 billion would top the record-breaking one of Chinese e-commerce giant Alibaba in 2014.

REUTERS