PHOTO
Saudi Aramco logo is pictured at the oil facility in Abqaiq, Saudi Arabia October 12, 2019. Image used for illustrative purpose. Maxim Shemetov
Riyadh-based Al Rajhi Capital has trimmed Saudi Arabian Oil Co.’s target price to 31 riyals ($8.26) per share from SAR 33 earlier, implying a 19.5% upside on the current traded price.
The brokerage maintained its ‘overweight’ rating on the stock.
“The company's ability to generate strong cash flows provides a solid foundation for sustaining and potentially increasing its base dividend payout,” analyst Madhu Appissa said. Despite the lower performance-linked dividend (PLD) for FY 2025, the estimated dividend yield is at 5.1%, higher than the historical average of 4.5% between 2019-2022 and also higher than the average for global peers of 4.7%.
Saudi Aramco’s earnings for 2024 was SAR 398 billion, 12% lower on year, dragged by lower crude oil prices and sales volumes.
The stock price has corrected recently due to the concern around weak oil prices and the company’s guidance for smaller PLD for FY25 due to the investments required for its ongoing growth capex, the Al Rajhi Capital report said.
“We anticipate the capital expenditure to peak in 2026 and investment outlay to gradually reduce post 2026. This would eventually boost free cash flows and push the FCF notably by 2030. Accordingly, there is a possibility that base dividend may increase in the medium term as incremental cash flows start accruing and the growth capex starts normalizing,” said Appissa.
Aramco CEO Amin H Nasser recently said the company is looking to identify additional investment opportunities in energy and chemicals, and technology in China as part of its key global strategy.
(Writing by Brinda Darasha; editing by Seban Scaria)
