The long-expected flow of riches from Fortescue arrived in the 2018-19 financial year thanks to that surge in iron ore prices which have already produced record dividends for shareholders in BHP and Rio.
Iron ore prices have tumbled again, losing more than 4% on Wednesday and yet investors in Australia were sanguine and ignored the slide when a week ago they were selling off the shares of the big miners with alacrity.
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%.
March quarter production was affected by the weather but remained strong. Guidance has been revised down slightly at the upper end of the range, to 165-170mt. Realised pricing was better than UBS expected, reflecting the closing of discounts across the quarter and revised pricing terms.