DUBAI: JPMorgan is the first major brokerage to initiate coverage of Saudi Aramco with an “overweight,” setting a price target of SR37 ($9.86) per share and saying it sees scope for an increase in the energy giant’s proposed $75 billion base dividend.
“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 SR34.1.
“Our bullish view is predicated on its dividend growth outlook, with scope to increase the $75 billion baseline as production scales up,” JPMorgan said in a note.
JPMorgan said that 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 barrels per day 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.
JPMorgan was one of nine global coordinators on Aramco’s IPO.