Aramco Touches A ‘Princely’ $2 Trillion Valuation, But Skeptics Abound

Crown Prince Mohammed got his $2 trillion valuation for the kingdom’s crown jewel on Thursday, as Saudi Aramco’s shares rose in the second day of trading.

The shares traded limit-up after the open, before ultimately paring gains to around 5%.

The Saudis engineered the surge by creating a supply/demand imbalance while simultaneously compelling state investment funds and wealthy families to support the stock. The Prince also put in place a variety of incentives that encourage investors to hold the shares.

Amusingly, Bernstein initiated coverage at Underperform on Wednesday. Their target is 25.50 riyals, implying a massive slide from current levels.

There was some two-way price action on Thursday, as evidenced by the fact that the shares didn’t just rise 10% and sit there. Some 417 million shares traded, 13 times Wednesday’s volume. Indeed, 185 million shares traded in the first half hour.

The Wall Street Journal on Wednesday said the Saudis have been talking with investors to gauge interest around a possible Asia listing.

You can expect local brokers and analysts to be more bullish on the stock than their counterparts outside the region. Prince Mohammed got quite a bit of pushback on the $2 trillion valuation target during the yearslong lead-up to the IPO. It didn’t help when he dispatched a 15-man hit squad to the kingdom’s consulate in Istanbul to suffocate and dismember dissident journalist Jamal Khashoggi.

Most international investors put fair value at somewhere between $1.2 trillion and $1.7 trillion, leaving plenty of room for a pullback, although it goes without saying that the Saudis would take steps to prevent any kind of slide that would make for bad optics.

Ultimately, there’s no escaping the fact that the behemoth is a money printing machine.

If you can get past the geopolitical risks, the human rights concerns and the myriad corporate governance issues, the bottom line (figuratively and literally) is that Aramco is peerless.