Understanding Fair Value in Uncertain Conditions
Fair value represents the price at which an asset would change hands between market participants in an orderly transaction at a specific point in time. Under normal circumstances, this is guided by observable market inputs and standard valuation models. However, in a rapidly evolving market, these assumptions become less predictable. Inputs such as cash flow forecasts, discount rates, and comparable company data are subject to rapid change, making static valuations potentially unsuitable.
In Saudi Arabia’s fast-changing market landscape, arriving at a robust and credible valuation now calls for a combination of quantitative rigour and qualitative judgement. Practitioners must not only apply established methodologies but also consider broader market dynamics, shifting regulations, and the strategic positioning of the business in question.
Valuation Challenges in the Saudi Market
Saudi Arabia’s journey toward economic diversification under Vision 2030 has opened significant investment opportunities, but it has also introduced new valuation complexities. Key challenges include:
Sector Variability: Saudi Arabia’s sectoral dynamics underscore the divergence in valuation benchmarks. Renewables, digital infrastructure, and tourism are benefiting from Vision 2030 alignment and attracting strong investor interest, while conventional energy continues to move in lockstep with global oil prices. For example, Tadawul’s Main Market IPOs in 2024, including MBC Group, priced at a median EV/EBITDA of around 22.3x, compared with ~11.2x on the Nomu platform for smaller, early-stage listings. Digital infrastructure transactions such as data centers and telecom towers often achieve 3–6x EV/Sales, reflecting scalability and scarcity of listed peers. Tourism and leisure projects backed by the Public Investment Fund (PIF), such as Red Sea Global, frequently command premium valuations well above traditional hospitality multiples due to their national strategic importance. By contrast, conventional energy assets are benchmarked more conservatively, with Saudi Aramco trading at 6.8–7.3x EV/EBITDA, anchoring the sector to global hydrocarbon volatility.
These disparities affect not just comparability but also shape risk perception across industries, requiring investors and advisers to tailor their methodologies by sector.
Regulatory Transformation: Reforms in capital markets, foreign ownership, and corporate transparency are redefining the business landscape. Shifting regulations influence investor and lender expectations, affecting risk premiums and valuation assumptions.
External Economic Factors: Oil price swings, inflationary pressures, and regional political shifts directly affect company performance and investor sentiment, often driving material changes in cash flow projections and market appetite.
Approaches to Valuation in Growing Market Conditions
In this environment, a flexible yet disciplined approach is essential. The three core valuation methodologies remain relevant but must be applied with greater nuance.
Income Approach: The discounted cash flow method remains fundamental but requires careful modelling of future earnings. In high growth markets, this involves running multiple scenarios, applying sensitivity analysis, and adjusting discount rates to reflect heightened risk and market volatility.
Market Approach: Applying the market approach in Saudi Arabia requires nuance, as sectoral benchmarks are thin and peer sets are often small. Tadawul now lists nearly 200 companies, yet many industries have only two or three direct peers. IPO and M&A activity therefore provide critical valuation markers. On the IPO front, healthcare and transport have led recent fundraising momentum: Specialized Medical Co. (SMC) raised ~$500 million in a heavily oversubscribed offering; Almoosa Health targeted 1.688 billion riyals (~$450 million); and Fakeeh Care Group launched its own listing, underscoring sustained healthcare demand. Meanwhile, airline operator flynas raised 4.1 billion riyals (~$1.1 billion), the first Gulf airline IPO in nearly two decades, at valuation levels highlighting transport sector growth. IPO pricing often achieves 20–25x P/E ratios, well above GCC averages, driven by robust domestic demand and retail participation.
By contrast, conventional energy continues to track lower ranges, aligned with Aramco’s multiples. On the M&A side, fintech, healthcare, and renewables deals in 2023–2024 have been struck at 20–40% premiums to regional comparables, reflecting deep domestic liquidity from PIF, Sanabil, and other state-linked funds. Together, these examples show how deal evidence supplements limited trading comps and illustrate the adjustments necessary when applying multiples in the Saudi market.
Cost Approach: Though less common for income-generating businesses, this method remains useful for asset-intensive industries or as a cross-check when other approaches yield divergent results.
Incorporating Qualitative Factors
In volatile markets, numbers alone may not tell the full story. Qualitative factors such as leadership quality, governance strength, regulatory compliance, and alignment with national strategic objectives carry increasing weight. For example, a company that demonstrates digital capability or contributes meaningfully to environmental goals under Vision 2030 may command a premium, even amid general market uncertainty.
Understanding these drivers and integrating them into the valuation process ensures that fair value reflects both current performance and future potential.
The Role of Professional Valuation Advisers across the Kingdom
As Saudi Arabia continues to position itself as a global investment hub, valuation will remain central to trust and transparency in the market. Advisors not only supports audit and regulatory review but also serves as a safeguard in negotiations, disputes, or transaction settings.In a complex and fast-moving market, the insights of experienced valuation professionals are invaluable. Advisers who possess both technical expertise and local market understanding can provide a balanced perspective, blending international standards with the unique features of the Saudi economic and regulatory landscape.
Their guidance can help businesses navigate valuation for a range of purposes, including investment decisions, financial reporting, strategic planning, and M&A transactions.
By applying sound methodology, integrating strategic context, and committing to transparency, stakeholders will be better equipped to make informed decisions, driving confidence and sustainable growth across the Kingdom.
