Profitability of IPOs in Saudi Arabia

Saudi IPO Market:

The Saudi IPO market is showing signs of recovery after a few slow years post 2009. Historically, deal count peaked in2006 and 2007, mostly due to the increase in insurance IPOs. Deal count and value are expected to pick up again in the second half of 2014 and the next two years. It is worth noting that in the examined period (2003 – 2014) companies from 14 different sectors have filed for IPO amounting to a total of 91 companies and total offer size of more than SAR107Bn.

Key Findings:

• 2014 is expected to be one of the highest years in terms of total IPO Deal Value.
• Saudi IPOs average returns are relatively higher than other regional and international markets.
• Insurance companies exhibit the highest average returns in all examined time frames followed by petrochemical companies.
• The Insurance sector had the highest number of IPOs followed by the retail sector.
• Issuance in the examined period was broad, covering 9 sectors.
• SAR 107.7Bn was raised in IPOs in the examined period, averaging SAR 1.17Bn per IPO.
• A smaller offer size1 was correlated with higher median returns in almost all examined time frames, as smaller companies typically experience higher volatility and higher price swings.
• There is an apparent corporate age gap between the companies filing for IPO. The majority being either exempt from the regulatory requirement or being relatively old in terms of years since inception.
• Changes in regulations limiting daily price change have altered post IPO price swings causing more stable increase overtime rather than radical short term price hikes.
• Limited risks and opportunity costs makes maximum exposure to IPOs along with accumulation prior to historical peaks and a short to medium term exit scheme a general investment strategy tailored for Saudi IPOs.

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