View from City Road: Cadbury shares look sweet

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EVEN the best cannot escape the fears of the jittery stock market. Cadbury Schweppes, the sweets and fizzy drinks company, produced interim results that were ahead of most expectations yesterday, yet the shares were hammered. They lost 14p - or 3 per cent - to close at 415p.

The reason for the rough treatment was a string of full-year profit downgradings. Instead of pounds 150m, the City thinks Cadbury will now make nearer pounds 140m. More unsettling for the market is the threat that earnings will be flat.

Pre-tax profits for the six months to 13 June were pounds 126m, 13 per cent up on last time. A hot spell in May and June meant strong demand for soft drinks and led the way to an 18 per cent rise in trading profit in Britain. Profits from the Americas, Pacific Rim and Africa were likewise improved.

Cadbury suffered in continental Europe, however, where its arch-rival Coca-Cola cut prices and spent heavily on promotion, on the back of the Winter Olympics and the opening of the Euro Disneyland theme park. Trading profits on the Continent slumped from pounds 30.5m to pounds 20.7m.

Exchange rates are also causing a headache. Cadbury estimates that adverse movements depressed half-time profits by 1 per cent and may reduce full-year profits by 4 per cent.

But despite currencies and the problems on the Continent it is plain that Cadbury - unlike so many reporting this season - operates in a reliable worldwide market. There is no talk of losses or write-offs. The interim dividend was increased by 3 per cent and the likelihood is that the annual payment will also be lifted. Cadbury even has the management and balance sheet strength to make productive acquisitions.

This is not news to the stock market. Even after yesterday's falls its shares have outperfomed the All-Share Index by 20 per cent over the past 12 months and outdistanced the not-uniformly defensive food manufacturing sector by the same amount. If earnings per share this year are the same as last the shares are trading at a multiple of 15 times.

This suggests the shares have little further to go. But there are few better places for your money until recession really does lift. Take refuge but don't go overweight.