After much speculation, Saudi Aramco, deemed the world’s most profitable company, will go public. It’s planning to list on the Riyadh stock exchange in what’s anticipated to be the world’s biggest initial public offering (IPO).
IPO valuation
It’s thought that Saudi Aramco is worth about $1.2trn (£927bn). However, expert valuations have been varying fiercely up to $2.3trn.
The much-anticipated listing has finally been confirmed, but is still shrouded in mystery. The valuation and date of the IPO are unknown. Crown Prince Mohammed bin Salman has previously stated he wants a $2trn valuation, to contribute to his vision of diversifying the Saudi economy away from oil by investing in non-energy industries. This figure is over seven times larger than Exxon Mobil Corp, which is the world’s most valuable listed oil major by market cap.
Oil prices
Reasons for the wide range of valuations include the suppressed oil price and threats to world growth, which make it difficult to predict the direction of future oil prices.
With all the fuss and fervour surrounding the possibility of a listing, I found it a bit of an anti-climax that the IPO will only include 1%-2% of Aramco’s shares. Given the massive valuation of the company, even this could raise $20bn-$40bn in the float. Anything over $25bn would gain it the coveted title of ‘world’s biggest IPO’.
After many rumours and a series of false starts, potential investors in the IPO were left reeling after the terrorist attack on Aramco’s facilities in September. This was swiftly handled and appeared to blow over quickly, but I think it should still be a concern, considering how easily the facilities were targeted. One of the many rumours surrounding the IPO included the possibility of a second listing on a foreign exchange such as the London Stock Exchange (LSE). This has been shelved for now, so unless you’re a seasoned investor buying foreign stocks, then most UK investors are unlikely to get in on the Aramco IPO action.
BP share price forecast
If the risk and volatility of oil investments appeal to you, then there are plenty on the LSE that you can choose from. Oil majors BP (LSE:BP) and Shell offer excellent dividends, which makes them safer than most. BP’s dividend is a star on the FTSE 100 with a yield of 6.5%.
I think the BP share price is suppressed at the moment because it’s hated by climate change activist groups and is under increasing pressure to move away from fossil fuels. Upcoming CEO Bernard Looney has a mighty job on his hands convincing the public of BP’s worth, but I think he has the credentials to pull it off.
Although still heavily involved in shale oil in the US, BP has now moved out of Alaska and is actively reducing its debt burden, which has a ratio of 52% today. It has earnings per share of 44p and an attractive price-to-earnings ratio of 11.
Big oil companies such as BP, have substantial budgets at their disposal, which allow them to carry out necessary research and to advance in renewables. While future oil demand is hotly debated, BP expects it to have increased from 100m barrels a day today to approximately 130m by 2040. As exciting as the Saudi Aramco IPO is, I think BP is a safer investment.
