The Investment Column: Chocolate market holds unpalatable risk for Cadbury's

Bulgarian Land Development; Carter & Carter
Click to follow
The Independent Online

Our view: Avoid.

Share price: 556p (-1.5p)

Cautious words from JP Morgan knocked Cadbury Schweppes shares yesterday. The US broker believes that the soft drinks and confectionery group's earnings forecasts look increasingly at risk, and it argues its case well.

According to the latest market research data, Cadbury has been struggling to regain positive sales momentum in the UK chocolate arena since the salmonella scare it suffered in late June. From the trough this caused in July, the situation gradually improved throughout August, but since the beginning of September the trend has deteriorated again. This is bad news as UK chocolate accounts for 20 per cent of Cadbury's business.

The key beneficiary has been the Mars and Twix owner Masterfoods, which overtook Cadbury as market leader in September, says JP Morgan. The broker urges investors to avoid Cadbury shares and is probably right to do so. Especially as the worst may not be over for the company should the authorities, who are investigating this summer's scare, decide to take legal action. This would leave it facing another PR nightmare and undoubtedly add further pressure on its sales.

Bulgarian Land Development

Our view: Buy

Share price: 90.5p (+0.5p)

There are no prizes for working out what Bulgarian Land Development (BLD) does. The company is one of half a dozen listed on AIM looking to cash in on the property boom in the Balkan country.

Why are property prices sky rocketing in Bulgaria? Simply, because after decades of stagnation the country's economy is finally motoring. It grew by 5.5 per cent last year and matched this performance in the first quarter of this year amid optimism about the country's accession to the European Union in January.

Yet, despite soaring prices over the past three years, property remains cheap relative to Western standards. Rental yields of up to 9 per cent are not uncommon in the Balkan country. Hence there is a great opportunity for a player like BLD to make money. The residential developer raised £21m from its March float. It was backed by CLS Holdings, the FTSE 250 property group behind the Shard of Glass development at London Bridge which will be the tallest building in Europe on completion.

Key to BLD is Christo Iliev, its chief executive. He owns Address Group, Bulgaria's biggest firm of estate agents, which has signed an exclusive agreement with BLD to provide it with a steady flow of projects and the knowhow to develop them. Yesterday came news that the AIM group had purchased 149 off-plan apartments for £4.5m. It intends to sell these over the next 12 months and expects to make a profit of around 40 per cent.

But by far the most exciting project the company is working on is the BLD Sofia Tower. The landmark 13-storey building will contain 150 luxury apartments and 6,000 square metres of retail space. BLD will invest £4m and expects to make a profit of more than 100 per cent on this. Meanwhile, on Bulgaria's Black Sea coast, it is developing a number of leisure complexes.

BLD shares have drifted since their 100p listing. Laxey Partners, the activist investment firm, was last week reported to have used the weakness to take a stake. Given the opportunities in Bulgaria and the strength of BLD's management, readers should do the same.

Carter & Carter

Our view: Buy

Share price: 733p (+8p)

There must be some punters who thought that investing in a vocational training company back in February 2005 might be so dull as to give ditchwater a bad name. More fool them, because shares in Carter & Carter, a leader in Government funded training, have gone like the clappers since coming to the market, giving investors a spectacular 213 per cent return.

The question investors must now ask is whether to buy more, hold tight or cash in their chips. Nothing goes up in a straight line forever, but in a highly fragmented market that is still growing rapidly Carter & Carter looks to be well ahead of the competition and benefiting from being a leading industry consolidator.

Results yesterday showed strong growth across the group, with full year underlying pre-tax profits more than doubling to £15.2m after an 85 per cent jump in sales to £94.1m.

Although the shares are not exactly cheap - they trade at 20 times 2007 forecast earnings - analysts are likely to increase their estimates based on yesterday's results. Government spending on outsourced vocational training initiatives should keep rising and Carter & Carter is ideally placed to win a significant chunk of any new contracts.

Carter & Carter has an aggressive acquisition strategy but is unlikely to be tempted into paying over the odds. Investors who might think they have missed the boat on this one should think again - there is plenty of upside left in the shares.