Blue Chip: US puts fizz in Cadbury

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The Independent Online
THE TIME has come to reassess Cadbury Schweppes. For a long time the confectioner to fizzy drinks outfit has enjoyed most of the attributes needed to qualify as a core holding in any balanced blue-chip portfolio.

Despite these attractions, there have been lingering doubts over the wisdom of the group's strategy to embark on a fizzy drinks drive into the US. While its initial moves seemed to go well, concern had grown over a deal with Coca-Cola to distribute Cadbury's Dr Pepper drinks, bought in 1995. It was a continuing worry that Coca-Cola would walk away, leaving Dr Pepper stranded and much diminished in value.

Yet in January came news that Cadbury had extended the deal to 2005, suggesting that the US giant did not see a threat from the British entrant. Since then, Cadbury has paid out pounds 181m to buy a 40 per cent stake in two US bottling plants and distributors in a joint venture with an investment capital firm.

With these two moves, Cadbury has overcome its two greatest weaknesses in the US: the prospect of Coca-Cola withdrawing support, and its failure to secure bottling and distribution of its own for brands such as Seven Up, A&W Rootbeer and Sunkist fizzy orange - all, incidentally, more direct rivals to Coke than Dr Pepper.

The response from the City has been a ringing endorsement. And there is room to add more bottlers in a market that remains extremely fragmented.

Closer to its UK roots, chocolates and confectionery, while not setting the world on fire, look to be in a strong position. While first-half figures saw confectionery sales flat at pounds 968m, profits rose 3 per cent to pounds 103m. The company is excited about prospects for exports to emerging countries; Russia, Poland and China are the key markets the business is penetrating.

Much of the upside has come from new management, led by chief executive John Sunderland, emphasising the need to maximise value to shareholders. His vision seems to be worth backing. The shares are a buy.