There has been a huge amount of media coverage surrounding the ongoing saga of Saudi Aramco and its initial public offering (IPO). The project has been on and off for several years, mainly due to the reporting requirements needed when a firm goes public.
But as of yesterday, Saudi Aramco floated by releasing 1.5% of its shares into public hands via the Saudi Tadawul stock exchange. You might think that 1.5% isn’t that much, but that is only half the story. Even just 1.5% equates to over $25bn, and following a 10% surge in the share price during trading yesterday, it makes the firm the biggest listed firm in the world!
Here in the UK, are we simply on the outside looking in?
Why would I want to invest?
Before we look at whether we can invest, we should address why we are so bothered about a firm listed outside of the UK. Quite simply, it is because Aramco is the most profitable company in the world, and it doesn’t look like this will change anytime soon.
Take an example regarding net profit. Apple (now knocked down as the second-largest listed company in the world) has net profit of around $59bn. By comparison, Aramco has a net profit of $111bn.
It operates in the oil and gas space, which could be seen as a black mark (pardon the pun) against investing, but I see it as the opposite. While you could say that firms like BP and Shell are competition, Aramco pretty much has a monopoly on oil and gas production in Saudi Arabia.
Previously it did not have much incentive to drive profits higher and become efficient as it was solely government-owned, and it still delivered huge numbers. Now that it will be under much more public scrutiny and pressure to perform for shareholders, the financials of the company should improve even more.
Can I invest?
The simple answer is not today. Unless you have some kind of access to buying on the Saudi stock exchange via family or friends, it is not available for foreign retail investors.
However, this may change in the near future, as there is talk of a secondary listing on the London Stock Exchange (LSE), where the firm would sit in the FTSE 100 index. A secondary listing is when a company lists on a separate exchange from their home one, usually to allow foreign investors to invest.
If Aramco went ahead and did list on the LSE, retail investors like ourselves would be able to buy and benefit from the potential share price increase that the firm might offer.
The second potential is that retail investors might be able to access it soon via brokers on a CFD or spread betting basis. A well-known retail trading platform plans to have it available for UK investors later this week. However, bear in mind that you would not actually own the shares, you would simply be betting on whether the price will rise or fall.
Overall, Saudi Aramco is well worth investing in, but for UK retail investors, it looks like we will have to wait.
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Jonathan Smith does not own shares in any firm mentioned. The Motley Fool UK owns shares of and has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019