Cash returns to shareholders in the first half exceeded Morgan Stanley's expectations and imply a total payout ratio of 70% and a base dividend pay-out of 50%. Operating earnings were slightly ahead of estimates.
The broker has reviewed its assumptions and forecasts for Rio, including marking to new iron ore price forecasts. This leads to a valuation increase to an enterprise multiple of 5.5x for FY20, in line with global peers.
2018 earnings were in line with Deutsche Bank's estimates. The broker observes the company's preference now appears to have switched to dividends as opposed to buybacks, with the first special dividend declared since 2006.