The Australian share market looked a bit shaky in the second half of May, but managed to catch up with more positive sentiment towards global risk assets in the first week of June, only to be met by a wave of stockbroking analysts' downgrades for ASX-listed stocks.
For the week ending Friday, 8th June 2018, FNArena registered no less than 15 downgrades versus only six upgrades. Three of the upgrades were for resources stocks. Two of those are named BHP and Rio Tinto. Clearly, expectations for continuation of the upgrade cycle for the sector remain very much alive and that's also the reason behind both upgrades by JPMorgan/Ord Minnett.
In the good books
BHP BILLITON LIMITED (BHP) was upgraded to Accumulate from Hold by Ord Minnett. B/H/S: 7/1/0. Ord Minnett expects strong prices are required to incentivise new supply to come on line in the iron ore and coal markets. This leads the broker to upgrade long-term forecasts to US$60/t for iron ore, US$140/t for hard coking coal and US$77/t for thermal coal. Ord Minnett does not believe the sector is replenishing its project pipeline and that supports commodity prices. Therefore, the consensus upgrade cycle is likely to continue over the medium term. Moreover, low debt across the sector and a favourable macro backdrop are supportive of strong shareholder returns. Target is raised to $38 from $30.