Al Rajhi Capital rates Saudi Aramco 'neutral'; fair price at SAR 37.50 | ZAWYA MENA Edition:
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 ($10) per share. The stock is currently trading on Sunday at 34.15 Saudi riyals on the Saudi stock exchange.
The target price, implying 8.9 percent upside, gives Aramco a valuation of $2 trillion.
“With a dividend prioritization of pro-rata $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 $80 billion dividend for 2020 and implied dividend yields that could range between 3.6 percent and 4.6 percent. 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 percent as of 2018, it also has the capacity to borrow to increase dividends, if required.”
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