Al Rajhi Capital Rates Saudi Aramco Neutral

Saudi Arabia-based brokerage, Al Rajhi Capital, has initiated coverage on the state oil giant, Saudi Aramco, with a ‘neutral’ rating and at a fair price of 37.50 riyals (US$10) per share. The stock is currently trading on Sunday at 34.15 Saudi riyals (US$9.11) on the Saudi stock exchange. The target price, implying 8.9% upside, potentially gives Aramco a valuation of US$2 trillion. “With a dividend prioritization of pro-rata US$75 billion for 2020-24 to non-government shareholders, Aramco stock gives the cushion of a bond for the downside and capital appreciation on the upside,” the brokerage said in a note issued last week.

It forecast US$80 billion dividend for 2020 and implied dividend yields that could range between 3.6 % and 4.6 %. Aramco has the potential to increase dividends and hence there should be lesser dividend risk, the note said. Furthermore, Aramco has the ability to lower capex, “and with a total debt to total assets ratio of 7.5 % as of 2018, it also has the capacity to borrow to increase dividends, if required.” The forecast is based on an expected 10.3 million barrels per day (mmbpd) crude and condensate deliveries and assuming Brent crude price at US$61.30 per barrel, the brokerage noted.

Earlier this month, BofA Global Research started its coverage of Aramco with a 'neutral' rating a price target of 36 riyals (US$9.60). JPMorgan, which was the first major brokerage to initiate coverage of Saudi Aramco, has an "overweight" rating and a price target of 37 riyals (US$9.87). Goldman Sachs rated the company "neutral" with a price target of 41 riyals (US$10.94), while HSBC initiated coverage with a "hold" rating and a target of 36.80 riyals.