Saudi Aramco's Q3 profits decline amid lower oil prices; Citi Research sets target price at 33 riyals

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Saudi Aramco's Q3 profits decline amid lower oil prices; Citi Research sets target price at 33 riyals
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Saudi Aramco (TADAWUL: 2222 ), the world's largest oil company, reported a 23% drop in net profit to SAR 122.2bn ($32.6 billion) for Q3 2023, primarily due to decreased oil prices and volumes sold. The company also noted a 22% decline in sales and a 21.9% drop in operational profits compared to Q3 of the previous year. These reductions were influenced by global economic uncertainty leading to lower hydrocarbon prices and refining margins.

Despite the downturn, the firm's Q3 EBIT posted a profit of SAR 19.8bn, marking a significant recovery from last year's SAR 4.25bn loss. This uptick was largely driven by inventory valuation movements. Additionally, Aramco's downstream capital expenditures saw a 10.9% increase, primarily fueled by growth project developments.

Following the release of the Q3 report, Citi Research set Saudi Aramco's target price at 33 riyals ($8.80). The stock traded at SAR 33.55 on Riyadh's Tadawul bourse as analysts acknowledged Aramco's solid balance sheet and Saudi Arabia's fiscal structure as defensive qualities moving into 2024.

The target price is derived from discounted cash flow valuation and projects oil prices at $82/barrel in 2023E, $73/barrel in 2024, and a long-term rate of $55/barrel. The valuation also takes into account Aramco's MSC 13 expansion plans, its voluntary oil output cut of 1 million bpd until the end of the year, and elevated cash flows from operations despite a 14% volume cut this year.

Amin Nasser, Aramco's CEO, confirmed their commitment to invest in the hydrocarbon chain using advanced technologies to enhance operations and promote emerging energy solutions. This strategy is anchored by a balanced energy transition plan considering the needs of all global energy consumers.

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