Saudi Arabia
An Introductory Equity Guide
An introduction to the Saudi Arabian equity market:
This is not a ‘regular’ research report. Rather, it attempts
to provide a high-level introduction to the Saudi Arabian
stock market and some of the larger listed companies.
We do not expect it to add much value to those already
following Saudi Arabia closely, though we hope those
less familiar with the market will find it useful.
Saudi Arabia’s economy has been bolstered by
rising oil prices: It is the largest economy in the Middle
East and possesses a fifth of global oil reserves. Real
GDP growth has averaged around 4% since 2003, while
external and fiscal balances have been in large surplus.
Moreover, the authorities have adopted an
expansionary fiscal and monetary approach to counter
the impact of the global economic downturn and lower
oil prices.
Saudi Arabia has the largest equity market in the
GCC: The average daily traded value of the Tadawul
over the last 12 months is US$1.6 billion and it has a
combined market capitalization of close to US$230
billion. The tradable free float is over US$110 billion and
the market is dominated by retail investors – over 90% of
value traded.
Valuation – most liquid stocks trade at an average
2009 consensus P/E of 9.8x: This is based on
bottom-up earnings growth of 6% for the year, using
Zawya consensus expectations. And, while reported
1Q09 net income for the group of stocks was down 50%
year on year, it increased sequentially by 26% from
4Q08. This suggests the year-on-year comparables will
get easier into 2H09. The 25 liquid stocks we use to
derive our market valuation cover those stocks with 1) a
market capitalization of over US$1 billion, and 2)
available consensus forecasts. The combined market
capitalization of the group is over US$180 billion.