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Stock Market Liberalization Boosts Saudi Brand Values

16 May 2016
This article is more than 4 years old.

· KSA has more brands in the Middle East’s top 50 than any other nation

· STC is Saudi Arabia’s most valuable brand, despite a 1% decline

· IPO of Saudi Aramco could finally reveal the Middle East’s most valuable brand

Every year, leading brand valuation and strategy consultancy Brand Finance puts thousands of the world’s top brands to the test to determine which are the most powerful and most valuable. The top 50 brands from the Middle East are featured in the Brand Finance Middle East 50.

STC is Saudi Arabia’s most valuable brand, valued at US$5.6 billion. Brand value dipped slightly this year. As a result of failing to make up expenses and losses on investments, the company reported a 21% profit drop in the third quarter of 2015 which has affected its overall brand value.

Al-Rajhi Bank has had a more successful year, its brand value increasing 13% to US$2.3 billion, as has third-placed Almarai, which has risen 7% to US$2.3 billion. It has been able to increase production capacity to meet the growing consumer demand, whilst seeing a growth in cash flow metrics, profitability and sales. Almarai’s Board clearly understand the importance of brand investment; they have approved a US$5.6bn capital investment plan over the next five years, which is likely to have a significant positive impact on brand value in the coming years.

The opening of the stock market as part of Mohammad bin Salman’s Saudi Vision 2030 plan has positively impacted Saudi Arabian brands. All KSA bank brands in the table have, like Al-Rajhi, experienced double digit percentage growth in brand value. The combination of continuing regulatory barriers to entry for competitors and a new raft of foreign investment bodes well for brands in the banking industry in particular, but brands from other sectors are set to benefit too.

The most notable of Mohammad bin Salman’s reforms has been the much-publicised IPO of Saudi Aramco. Valuations have varied significantly, however this could create the world’s most valuable public company. In turn, this would reveal one of the most valuable brands, not just in the Middle East but worldwide. For now, Aramco’s private status means that Brand Finance has been unable to value its brand, however, this would change following the IPO.

Oil & Gas is sometimes assumed to be a sector in which brands play a limited role, however this complacency is misplaced. This, combined with the huge revenues involved, means that for those in the industry who invest in and manage their brands, there is major scope to command price and volume premiums and to gain competitive advantage. Saudi Aramco has the potential to control the world’s most valuable brand, however with oil prices under pressure and with reserves facing long-term decline, careful investment, monitoring and management will be required.

ENDS

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Media Contacts

Konrad Jagodzinski
Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Florina Cormack-Loyd
Senior Communications Manager
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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