September quarter production and shipments were broadly in line with Morgan Stanley's expectations. Revenue realisation was softer, which raises some downside risk to the broker's December quarter forecasts.
Morgan Stanley acknowledges Fortescue Metals is a high-quality company but the stock is now 13% above the target. The broker expects the headline iron ore price and 58% price realisation will recede from current highs in the first half of 2020 as supply rises.
Fortescue's announced 60c special dividend came as a surprise given typically such announcements are reserved for the result release. The broker calculates 60c represents 80% of second-half earnings using its own (lower) iron ore price forecasts, and the company had flagged a payout ratio of 50-80%.