Oil has traditionally been the most profitable business in the world, and Saudi Aramco is the king of profitable oil companies with a production cost of just $2 a barrel.
Remember when we were talking about falling commodity prices earlier? Yeah, that doesn’t really matter when your production costs are the best in the world.
The Wall Street Journal is now reporting that on the second day of trading on Saudi Arabain exchanges, shares of the global oil giant traded at an implied market capitalization of $2 trillion:
Shares in Aramco jumped on their second day of trading to reach Saudi Crown Prince Mohammed bin Salman’s coveted valuation target of $2 trillion.
In early trading Thursday, the oil giant’s share price on Saudi Arabia’s Tadawul exchange rose 8% to 38.15 riyals ($10.30), giving the oil giant a market capitalization of $2 trillion. That was up from a $1.7 trillion valuation set during the company’s initial public offering, the world’s largest ever.The Wall Street Journal
In 2019, an oil company is the most profitable company on Earth. They have the biggest IPO ever, hit their target valuation –– they look like they’re on top of the world. Of course, everyone is wondering: What does the future hold?
The increase in value is partly a function of the outsize impact that the company’s tiny 1.5% share float has on its valuation. It took only $300 million in shares traded Wednesday to drive the value of Aramco up by nearly $200 billion. At a price of 38 riyals, Aramco’s 1.5% free float means shares owned by the public are worth $30 billion.The Wall Street Journal
Everyone was watching this IPO. They worked very carefully to make sure this ship would sail –– everything from the amount of float to the ad campaigns to the choice of exchange.
Still, Prince Mohammed and his officials can point to the milestone as proof that Aramco, known officially as Saudi Arabian Oil Co., was worth $2 trillion. The value of the company has been a sticking point for global investors for the four years since the prince announced an intention to list the firm, and was one of the main reasons the share sale stalled.The Wall Street Journal
That’s true, but Masayoshi Son can also say that WeWork was worth $47 billion not too long ago.
Dubai-based investment bank Arqaam Capital initiated coverage on Aramco Wednesday, setting a target price of 39.2 riyals a share and implying a valuation of $2.1 trillion. It said Aramco’s commitment to pay a dividend of $75 billion and its low production costs justified a premium valuation.
How the stock trades over the coming months will help determine whether Aramco issues more shares domestically or lists the oil company on an international exchange—a goal the Saudi government previously set. An overseas listing could attract more international investors.The Wall Street Journal
Saudi Aramco, the world’s most profitable comapny, hit a $2 trillion valuation in its second trading day. It generated $111 billion in profits selling $355 billion of oil last year.Tweet