Saudi Bank Stocks Are At Their Most Attractive Valuations in 10 Years 1

Saudi banks: good value at attractive prices

Part 1 of this series took a closer look at Saudi stocks and their value at current prices. Now, while Saudi Arabia (KSA) appears poised to continue to deliver small victories in its long-term diversification and transformation agenda, the markets remain skeptical at present about its growth and earnings outlook. The banking sector is seen as a good value point (for reasons discussed in Part 1) at present, with Saudi banks currently trading at historically low price-to-book ratios.

Moreover, the book value per share for the sector has been rising steadily over the past 10 years. These facts are evident in the forward valuation metrics of the S&P Saudi Arabia Banks price in the LCL Industry Index, charted above.

Potential FTSE upgrade may boost Saudi stocks

Saudi Arabia’s financial sector stocks such as Al Rajhi Bank (1120.SR) are being looked at in a favorable light by market analysts and investment bankers globally (ACWI) (VTI). Goldman Sachs (GS) upgraded the stock to BUY, citing improving net interest margin estimates, lower funding costs and reduced risk expenses at the bank. The stock also found a place in Deutsche Bank AG (DB) and Dubai-based Arqaam Capital’s top stocks list.

FTSE Russell announced on 30 September that it would not be adding Saudi Arabia to its index of emerging market (EEM) (VWO) countries. Kuwait, however, did make the cut, and was upgraded to emerging as part of the index provider’s country classification annual review.

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We drilled through the universe of financial sector stocks on the Tadawul Exchange to filter out three stocks currently trading at attractive valuations. The next part of this series provides insights into the current and future financial valuations for these stocks.

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