‘ARAMCO VALUATIONS VARY BY OVER US$1TRIL’

A deal over US$25b will top record-breaking IPO of Alibaba in 2014

VALUATIONS for Saudi Aramco vary by more than US$1 trillion (RM4.15 trillion), according to fund managers who have seen banks’ research, underscoring the uncertainty hanging over what could be the world’s largest stock market listing.

Fund managers are poring over bank research after Aramco on Sunday announced its intention to float on the Riyadh stock market.

Sources have said that Aramco could offer one to two per cent of its shares, raising as much as US$20 billion to US$40 billion. A deal over US$25 billion would top the record-breaking initial public offering (IPO) of Chinese e-commerce giant Alibaba in 2014.

On Sunday, however, Aramco provided no size of the planned IPO, no timeframe, identified no cornerstone investors and gave no information on an expected follow-up listing overseas.

Saudi Crown Prince Mohammed Salman has spoken of a US$2 trillion value target for the world’s largest oil producer while banks have provided varying figures.

Bank of America (Bofa) Merrill Lynch estimates Aramco’s valuation at US$1.2 trillion to US$2.3 trillion while EFG Hermes has a valuation of US$1.55 trillion to US$2.1 trillion, said two fund managers who have seen the research reports.

Goldman Sachs — one of the banks coordinating the IPO — has put the company’s valuation between US$1.6 trillion and US$2.3 trillion, said two sources.

Bernstein analysts estimated “a fair value range” for Aramco is US$1.2 trillion to US$1.5 trillion.

“Our discounted cash flow approaches... suggest US$1.4 trillion on average,” it said.

Bofa Merrill’s has also used 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 offers a similarly wide range in value, said the fund manager.

“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,” said one analyst.

EFG Hermes research implies a 2020 estimated enterprise value to Ebitda 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 to 5.3 per cent.