JPMorgan first major brokerage to rate Saudi Aramco 'overweight'

JPMorgan first major brokerage to rate Saudi Aramco 'overweight'

JPMorgan has initiated coverage of Saudi Aramco's shares with an "overweight" rating and a price target of 37 riyals (US$9.86) per share, saying it sees scope for the company to increase its proposed US$75 billion base dividend.

Participants attend the official ceremony marking the debut of Saudi Aramco's IPO on the Riyad
FILE PHOTO: Participants attend the official ceremony marking the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019. REUTERS/Marwa Rashad

DUBAI: JPMorgan is the first major brokerage to initiate coverage of Saudi Aramco with an "overweight", setting a price target of 37 riyals (US$9.86) per share and saying it sees scope for an increase in the energy giant's proposed US$75 billion base dividend.

Goldman Sachs on Tuesday rated the company "neutral" with a price target of 41 riyals while HSBC on Wednesday initiated coverage of Aramco with a "hold" rating and a target of 36.80 riyals.

Bank of America Merrill Lynch said it rates Aramco as "neutral", with a price target of 36 riyals per share.

"Aramco is unique. In terms of quality of assets, scale and profitability it dwarfs just about any company globally," BofA said in a note. "Yet, at current valuations, most of the outstanding fundamental factors are already priced in."

Citigroup also gave Aramco neutral rating with a price target of 34.1 riyals.

Bernstein and Jefferies both initiated coverage of Aramco last month with "underperform" ratings saying the company had been priced at a premium to international oil majors in its December IPO despite governance issues.

"Our bullish view is predicated on its dividend growth outlook, with scope to increase the US$75 billion baseline as production scales up," JPMorgan said in a note.

Morgan Stanley had an "underweight" rating and a price target of 28.10 riyals, the lowest among investment banks that advised Aramco on its IPO.

JPMorgan said Aramco's ability to sell its oil at a premium, capital expenditure flexibility and low debt to equity ratio would allow it to distribute a higher percentage of cashflow.

The brokerage said Aramco is uniquely positioned to raise production with minimal incremental capital expenditure.

It said it could see Saudi production capacity rising to 15 million bpd from the current 12 million and production of 10 million citing increased appetite by the kingdom to regain its share of global oil demand growth as oil markets tighten.

At 1134 GMT, Aramco shares were down 0.6per cent at 34.65 riyals. They were priced at 32 riyals for their IPO.

JPMorgan was one of nine global coordinators on Aramco's IPO, which raised a record of US$29.4 billion including a greenshoe allocation of extra shares.

(Reporting by Hadeel Al Sayegh;additional reporting by Marc Jones; editing by Kirsten Donovan, Jason Neely and Louise Heavens)

Source: Reuters

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