Musings on Markets: Aramco's IPO Valuation and Investment Analysis
A comprehensive valuation analysis of Saudi Aramco's landmark IPO, examining the company's unique position as a state-controlled entity with massive reserves and exceptional profitability. The author employs three valuation approaches (dividend discount, potential dividends, and DCF) to arrive at an equity value near $1.5-1.67 trillion, while considering political risk, governance constraints, and upside limitations from progressive royalty structures. Despite the investment merit, the author concludes Aramco is unsuitable for his portfolio due to its dividend-focused nature and limited price appreciation potential.
Metrics in this report
13.6million barrels per day
2018 actual production volume
48percent
2018 combined corporate tax (20%) plus Zakat levy (2.5%) on taxable income
35years
Reserves exhaustion timeline before discovery of new reserves
44.61percent
2018 return on invested capital
41percent
2018 annual return on equity
20-25USD per barrel
Saudi Arabia extraction cost advantage vs. $40-50 for conventional producers
1.0multiple
median
Integrated oil companies with market caps exceeding $10 billion, October 2019
23USD
median
Integrated oil companies with market caps exceeding $10 billion, October 2019
13multiple
median
Integrated oil companies with market caps exceeding $10 billion, October 2019
50percent
minimum
Discount vs. global integrated oil company peer group median multiples