bhp and rio upgraded to buy by citi

Citigroup says BHP Billiton's decision to walk away from its proposed 6000p-a-share bid for Rio Tinto was prudent. It may have come as a blow to the management's credibility but, says Citi, it will ultimately prove positive for shareholders. it remains a buyer of the shares, up 25p at 1061p, but is also a buyer of Rio Tinto, 10p ahead at 1280p, despite it bearing the full brunt of the economic slowdown as its commodity exposure, dominated by iron ore, aluminium and copper, has experienced a sharp reduction in profitability.

Citi adds that Rio's balance sheet, saddled with Alcan acquisition debt, is severely constrained. it has resumed coverage with a 2690p target because it believes the profitability crunch and credit risks have been priced in.