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Saudi Aramco IPO: Fun Facts

December 11, 2019

Saudi Aramco is +10% in its first day of trading after the IPO which raised $25.6B USD. Today’s price values the company at $1.88T USD…somewhat below the Prince’s aspired for $2T, but a princely sum nevertheless. For comparison, the total market capitalization of all the 233 S&P TSX Composite index constituents combined is $1.97T USD. It’s a bit of a stage managed charade, with no international participation or cross listings, and likely some not-so-gentle coercion by the gov’t to get prominent Saudi families and banks to support the issue, so we’ll see how well the stock does after the post-IPO honeymoon period and some seasoning in the markets, but it does serve to illustrate that despite the rise of ESG investing and all the talk of “peak oil demand”, etc. that oil reserves and production remain very, very valuable. Saudi Aramco overnight just became the most valuable company in the world, by a longshot.

Beleaguered Canadian energy investors should take note that if our own energy behemoths were to command the same valuation multiples that Saudi Aramco’s shares now reflect, Suncor and Canadian Natural Resources shares would trade at $55.71 and $56.57 respectively, applying the 17.3x 2018 earnings Saudi Aramco trades at to consensus forecasts for 2019 earnings for each of these companies. Or if production volumes were to be the relevant yardstick, applying the C$182,569 per flowing barrel of production that Saudi Aramco trades at, based on consensus forecasts for 2019 production volumes Suncor and Canadian Natural Resources shares would fetch prices of $82.56 and $151.60, respectively. Despite, environmental, social and governance virtues that absolutely run circles and laps around Saudi Aramco, we probably ought not to hold our breath waiting for the higher end of those figures, but a strong case can be made for this IPO at least shining a spotlight on the compelling relative value in Canada’s largest oil producers and highlighting an upward re-rating opportunity for investors.

Brian Madden

Senior Vice President, Portfolio Manager

Brian began his investment career in 1997 with one of Canada’s foremost independent research firms.

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