Investment: Cadbury shows its power

JUDGING BY the length of Cadbury Schweppes' presentations to the City, the confectionery and soft drinks group sometimes seems to be trying to bore its audience into submission. But though a 90 minute session may test the stamina, there is no arguing with the fact that Cadbury is proving to be a powerful performer under chief executive John Sunderland.

The shares have risen by more than 40 per cent in the last year - outperforming the market by 25 per cent. They added a further 27p to 854p yesterday on the back of an 8 per cent rise in underlying first-half profits to pounds 254m despite a currency hit.

The City likes Mr Sunderland's "Managing for Value" initiative which commits the company to growing earnings by 10 per cent-plus a year, generating pounds 150m of free cash flow and doubling shareholder value over five years. Managers are being made more accountable as the business moves to a more performance-based culture.

The next step is to kick some of its US bottlers into line. Telling figures produced yesterday showed that though Cadbury's drinks brands have done well when distributed through the Coke system or through its American Bottling Company operation, formed earlier this year, they have underperformed badly in the independent sector.

Cadbury is now starting to get tough on the laggards and is introducing a more performance-based fee system. More acquisitions are likely in this sector as the market consolidates.

In sales terms Dr Pepper did well, increasing sales by 6 per cent in the first half, though Seven-Up continued to lose share to Coca-Cola's Sprite. The main worry is if Pepsi decides to roll out its Storm brand, which is currently on trial.

On ABN Amro's full-year forecasts of pounds 625m, the shares trade on a forward rating of 21. For a company expecting double-digit earnings growth that looks good value.

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