VASRO has published an updated equity research report on Saudi Aramco Base Oil Company - Luberef, maintaining its BUY recommendation and raising the target price from SAR 136.00 to SAR 158.00 per share. Based on the reference price of SAR 126.90, the target implies 24.5% price upside and a potential total return of close to 30% when including the expected FY2026 dividend.
Luberef delivered the strongest first half in its fifty-year history. Revenue increased 27.4% year on year to SAR 5.577 billion, while net income more than doubled to SAR 992 million. Earnings per share reached SAR 5.90, compared with SAR 2.77 in the prior-year period, and free cash flow increased 346% to SAR 1.064 billion.
The quality of the result is particularly important. Base oil sales volumes declined 5% to 553,000 metric tons, meaning the record earnings were not generated by selling more product. Instead, profitability was driven by exceptional base oil crack margins. The average margin reached SAR 2,732 per metric ton in H1 and SAR 3,625 in the second quarter, up 91% year on year.
Operational execution allowed Luberef to capture the favourable market environment. Mechanical availability remained at 100%, while the company reported zero Total Recordable Incident Rate and 44.4 million safe working hours. In refining, strong margins only translate into earnings when facilities are operating reliably.
Management's decision to move the Growth II shutdown to October 2026 is also economically significant. The postponement allows Luberef to continue producing during the current high-margin period, although the project's expected start-up has shifted into H1 2027. The key test will be whether the company completes the shutdown efficiently and delivers Growth II within the revised schedule.
The balance sheet and dividend outlook remain supportive. Luberef has declared an interim dividend of SAR 4.00 per share, payable in October, while VASRO forecasts a total FY2026 dividend of approximately SAR 7.18 per share. The distribution is backed by cash already generated, and the company remains in a net cash position.
Despite the earnings upgrade, Luberef trades at approximately 14 times VASRO's FY2026 earnings estimate. The new SAR 158 target is based on a combination of discounted cash flow, peer valuation and normalised mid-cycle earnings. Importantly, the valuation does not assume that current crack margins remain at exceptional levels indefinitely.
The main risks are a faster-than-expected normalisation in base oil margins, weaker second-half volumes and execution risk around the October shutdown. Nevertheless, Luberef's cash generation, operational reliability, dividend capacity and current valuation continue to support the BUY recommendation.
Read the full VASRO Luberef Equity Research Update for the detailed forecasts, valuation analysis and risk framework.
The post Luberef Reports Record H1 2026 Earnings as Base Oil Margins Drive Cash Flow and Higher Valuation appeared first on VASRO GmbH.
