Commodity forecast downgrades by Citi were the main reason for the three downgrades this week as one other resource company – Bluescope – got a surprise upgrade as at least one broker reviewed its cautious stance.
In the good books
Morgans upgraded Bluescope Steel (BSL) to Hold from Reduce. The broker was cautious about the stock previously, based on how much of the FY14 financial performance was cyclical and how much was related to ACCC intervention on anti-dumping issues. In FY15, despite declining spreads, Morgans finds evidence of cyclical improvement, particularly in Australia, and this should provide a floor to the share price.
Macquarie upgraded Treasury Wine Estates (TWE) to Neutral from Underperform. Macquarie transfers coverage to a new analyst and examines the outlook for Australia's wine export market. The broker finds luxury wine exports to China have likely bottomed and look like returning to growth. The low end of the market is slow but the broker notes the rate of value decline is easing and growth could turn positive in coming months. Near-term earnings for Treasury Wine are supported by elevated luxury inventory but caution prevails because of the structural issues with the large commercial category.