United Securities says Luberef IPO price range sets valuation between SAR 15.9-17.3 bln

Logo of Saudi Aramco Base Oil Co. 

United Securities said that the initial public offering (IPO) of Saudi Aramco Base Oil Co. (Luberef), with a price range between SAR 91 and SAR 99 per share leads to an implied market valuation between SAR 15.3 billion and SAR 16.7 billion and estimated valuation between SAR 15.9 billion and SAR 17.3 billion.

Luberef’s performance is currently at the peak cycle with record high crack margins (difference between the prices of base oil or byproducts and feedstock) achieved by the company in the recent past, the brokerage said in a new report.

The current valuations are peak cycle valuations, which may not be achieved on a consistent basis, it added.

“We believe Luberef’s revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) to be cyclical and depend on oil prices and crack margins.”

Luberef’s base oil sales revenues are made up of Group I and Group II base oils produced by the company, as well as base oils imported from the Aramco Base Oil Alliance, United Securities noted.

The company’s base oil revenue is linked to the base oil supply and demand market dynamics which leads to price fluctuation.

The company has plans to increase the production capacity of Group II Base Oil and introduce Group III base oils in the future in key regional and international markets, the report said, expecting to witness an increase in the demand for its base oil in the coming years.

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