Is Saudi Aramco worth the hype?
With the long-awaited IPO of Saudi Aramco later this year, a huge player is entering the stock markets. Aramco posted a net profit of nearly 100 billion euros in 2018 and now hopes for a total stock market value of 2000 billion dollars. For comparison: that is ten times as much as Shell. And almost as much as Apple and Microsoft combined.
The Saudi government is starting to sell a few percent of the shares, it was announced this morning. This means that the only shareholder to date is raising tens of billions. Money needed for investments in a future in which the country is less dependent on oil production.
Whether the 2000 billion valuation is achieved depends on what investors are willing to pay when they go public. Saudi Aramco is certainly doing everything it can to attract new shareholders. Allegedly it would like to pay out $ 75 billion a year in dividends. That too is a record.
Is a share in Saudi Aramco a good investment financially? That first of all depends on the oil price. If that increases, then Saudi Aramco’s profit increases. The share price and probably also the dividend will follow.
It is wise to look further than just the $ 75 billion that is expected per year. That’s nice, but you also have to look at the total value of the company. These are impressive figures, but is Saudi Aramco also a good investment? And what about other potential objections such as human rights in Saudi Arabia and climate change to which oil companies contribute?
With regard to the number of barrels of oil pumped up, Saudi Aramco is by far the largest with a 10 percent market share. Measures taken by the company to combat greenhouse gas emissions, on the other hand, are limited.
In 2017, the company installed the first windmill in Saudi Arabia. In their own words, the capacity equals that of 18,000 barrels of oil per year. If oil production is running at full speed, Saudi Aramco sells around 12 million barrels per day. That is more than 243,000 times as much.
Saudi Aramco wants to invest more in wind turbines in the Middle East in the coming decade, but all in all, the company certainly does not stand out due to proactive climate policy.