Stocktake: ‘Too much, too soon’ for $2tn Saudi Aramco

Oil giant Saudi Aramco defied its many doubters and became the world's first $2 trillion (€1.8 trillion) company last week. Wednesday's initial public offering valued the company at $1.7 trillion but rapid gains in early trading in Riyadh saw that swell to $2 trillion – a valuation long sought by Saudi crown prince Mohammad bin Salman but one largely seen as excessive by international investors.

Whether it maintains that valuation is another matter. "Too much, too soon," said analysts at Bernstein Research, who believe the company is worth $1.4 trillion. Bernstein cited doubts over earnings growth and weak oil prices, but the main cause for scepticism is the fact Aramco now trades at a higher valuation than peers such as Exxon Mobil and Royal Dutch Shell.

The company should trade at a discount rather than a premium to western oil giants, says Bernstein – a point that is hard to disagree with, given the obvious corporate governance and geopolitical concerns associated with a company that is still 98.5 per cent owned by the Saudi government.

Restrictions on short selling on the Saudi stock exchange may help keep prices afloat for now, but Bernstein is right to warn lower prices will “inevitably come”.