Coca-Cola and cocoa give Cadbury a headache

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The Independent Online

Clouds are gathering over Cadbury Schweppes on two fronts and as investors got wind of this yesterday they were quick to reduce their exposure to the soft drinks-to-confectionery group, which finished 6.25p lower at 446.75p.

Clouds are gathering over Cadbury Schweppes on two fronts and as investors got wind of this yesterday they were quick to reduce their exposure to the soft drinks-to-confectionery group, which finished 6.25p lower at 446.75p.

It was Deutsche Bank that raised the most worrying issue likely to have an impact on Cadbury in the near term. This centres on the prospect of a massive marketing offensive from its drinks sector rival Coca-Cola. Cadbury has been a beneficiary of the group's recent difficulties in the United States, where it has been losing market share for some time.

However, Deutsche believes that Coca-Cola will launch a major advertising campaign tomorrow in an effort to reverse this trend and the broker fears that it is likely to herald an increase in marketing spending of between £350m and £500m. Deutsche calculates that if Cadbury were to match this it would have to spend an additional £50m next year.

Meanwhile, Cadbury also faces rising raw material prices. One source of price pressures is the growing political instability in the Ivory Coast, which is the world's biggest exporter of cocoa. Shipments from the African country were blocked yesterday for the second day in a row as mob violence intensified. The violence erupted in the capital Abidjan and the port city of San Pedro over the weekend, with French peacekeepers struggling to restore order.

If this situation continues, cocoa prices are expected to head sharply higher, which will add to the cost pressures facing Cadbury. Analysts also worry that the group may face further cost pressure from price increases at bottlers in the US, who are themselves up against increasingly expensive raw materials.

Elsewhere, as the FTSE 100 closed up 1.1 points at 4,717.7, Cable & Wireless added 2p to 109.5p ahead of today's first-half figures. Dealers reported speculation that the numbers could be accompanied by news of a shake-up in the company's management. Despite the rise in the share, Nomura was heard warning that there is a risk that C&W's figures may disappoint, given the tough trading environment facing its UK business.

ScottishPower, off 4p to 431p, was undermined by a downgrade by Dresdner Kleinwort Wasserstein. Cutting its rating to "reduce" from "hold", the broker highlighted the fact that the company's valuation has risen by £1bn so far this year and suggested that the stock market may be getting a little ahead of itself. Brambles Industries gained 7.25p to 272.75p thanks to strong results from its peer IFCO. The German plastic crates and pallets group boasted of 22 per cent revenue growth and a 50 per cent jump in profits.

Luminar jumped 11.75p to 483.75p as Panmure Gordon upped its stance on the nightclubs operator to "buy" from "hold". Luminar is scheduled to unveil first-half results next week and the broker believes the figures could be accompanied by signs that the group's rebranding campaign is beginning to work.

Elsewhere, Goldman Sachs put the skids under Capita, which went 6.5p lower to 362p, by telling investors that the support services specialist now looks overvalued. According to Goldman, this is particularly obvious when one looks at the relatively lowly price Capgemini got for its stake in Vertex, which is a rival to Capita.

There was brisk trade in Woolworths, up 0.75p to 46p, as traders again talked of the retailer as a likely bid target. Analysts reckon a move on the group is unlikely before the all-important Christmas trading period. Somerfield improved 1.25p to 136.75p as the Icelandic retailer Baugur declared that it had raised its stake in the supermarket chain to 5.5 per cent.

Dawnay Day was seen adding to its holding in Austin Reed, steady at 133.5p. The investment group bought a further 120,000 shares taking its total stake to 8.4 million, or 26 per cent. RPC ticked 1.5p higher to 209p as brokers tipped the packaging group's recent Nampak acquisition to be a good performer over the coming months. TRL Electronics rose 4p to 179.5p amid whispers that the defence group's upcoming results are likely to be accompanied by a series of contract wins. Gossips also reckon TRL has enjoyed strong trading since the summer.

Finally, there must have been some red faces at JOHCM Alternative Investments yesterday. The US hedge fund rushed to exit its 5.5 per cent holding in the troubled support services group Jarvis, having added to it as recently as the week before last. At that time, Jarvis shares traded at about the 35p level while yesterday they closed at just 14p, up 1p. JOHCM has clearly taken a hit on its Jarvis bet, showing that hedge funds can also get it badly wrong when it comes to playing the market.

Market movers

↑ Yell Group 390p (up 20p, 5.4 per cent). Breaks into the black at the interim stage thanks to strong sales.

↑ British Airways 222.25p (up 3.25p, 1.5 per cent). UBS reiterates its "buy" stance and raises its price target to 330p from 250p.

↑ Marconi Corp 528.5p (up 23.5p, 4.6 per cent). Investors return to the stock as interim results prove to be not as dire as some had feared.

↑ Desire Petroleum 37.5p (up 9.5p, 33.9 per cent). Positive drilling results from the group's site in the Falkland Islands excite.

↑ Sareum Holdings 3.37p (up 0.5p, 17.4 per cent). Enters into collaborative agreement with Inpharmatica.

↑ Itis Holdings 24.5p (up 3.25p, 15.5 per cent). Posts a first-half pre-tax loss of £1.5m compared with a loss of £2.9m a year earlier.

↑ Ferraris Group 114.5p (up 11p, 10.6 per cent). Unveils strong annual results and an upbeat outlook statement.

↑ WH Ireland 110p (up 9.5p, 9.5 per cent). Investors await bid developments at the stockbroker.

↓ CSR 320p (down 28.5p, 8.2 per cent). Third-quarter numbers from the group meet expectations but its outlook for the months ahead disappoints some.

↓ Electrocomponents 300p (down 9.5p, 3.1 per cent). Sales growth slows at the electrical parts distributor.

↓ Bovis Homes 518p (down 9.5p, 1.8 per cent). Warns of lower sales volumes as the housing market in the UK continues to slow.

↓ Jarvis Porter 10.75p (down 2p, 15.7 per cent). First-half profits slump to just £111,000 from £1.6m and the group warns that market conditions remain challenging.

↓ Cambridge Antibody 595p (down 90p, 13.1 per cent). Clinical trials for its eye surgery treatment Trabio fail.

↓ Micap 37.5p (down 3.5p, 8.5 per cent). Announces the acquisition of Applied Analysis, a pharmaceutical services company, but posts widening interim losses.

↓ easyJet 175p (down 4p, 2.2 per cent). Investors lock in profits from the stock's recent strong gains.