Sweet nothings from Cadbury

A good time to take profits at St Modwen; Plenty of smoke, but no fire at Molins

Cadbury Schweppes may be poised to become the world's biggest sweet manufacturer thanks to its purchase of the Adams chewing gum business. But its investors were left with a distinctly sour taste in their mouths after the Dairy Milk group's shares closed at a five-year low yesterday.

A lack of fizz from its US soft drinks business has prompted Cadbury to chase growth elsewhere, from countries as diverse as Mexico and Denmark and in markets as disparate as jelly babies and fruit juice.

The defining deal, the $4.2bn (£2.6bn) purchase of Adams in December, sets the group fair for enticing growth. There is a vogue for "functional products" (chewing gum that whitens your teeth and lozenges that soothe your throat).

Cadbury has taken on an immense restructuring challenge and investors have understandably taken fright. In addition to working out how to untangle Adams from its former parent, the group has chosen 2003 as the year to merge its US beverages businesses – Dr Pepper/7UP, Motts and Snapple – into one unit. It is also restructuring its management team. Oh, and come May, it will also move its current acquisitions guru Todd Stitzer up to the post of chief executive.

On top of that – yes, there's more – Pepsi is kicking 7Up out of its distribution system. The changeover to independent bottlers means 7Up volumes will fall by 15 per cent and profits at the Dr Pepper/7Up unit will be flat on last year.

Thankfully, figures for 2002, out yesterday, were okay. Pre-tax profit at the group rose by 2 per cent to £830m on sales up 7 per cent. The Chinese decided they had more interesting things to spend their money on than chocolate, but this was offset by the rediscovery of the British sweet tooth: like-for-like sales at Cadbury Trebor Bassett rose by 6 per cent.

Cadbury has set the right course, but there doesn't seem much likely to buoy the shares in the next 12 months. New investors should resist, but current shareholders should hang on for sweeter things.

A good time to take profits at St Modwen

Times are getting tougher in the property sector, but little St Modwen keeps building share holder value. The company buys up slightly shabby old properties, gives them a make-over and then pockets a tidy sum when it sells them on. Because it is a more active business than the lumbering giants of the sector – who are content in the main to sit back and reap rental income – the shares are highly regarded.

They are also highly rated, trading at more than the value of the company's assets in the expectation of future returns.

St Modwen is unique in having what it cutely calls a "hopper of future opportunities" (10 years-worth of sites ripe for development) that enable it to generate earnings on top of rents. But rents account for half of profits. The stock looks toppy if the UK heads into a rental downturn. St Modwen's property portfolio is already suffering rising vacancies.

Yesterday, it reported an annual profit up 18 per cent to £30m and net assets up 18 per cent over the course of 2002 to the equivalent of 161p per share. The stock was unmoved at 172.5p. Also yesterday, St Modwen appointed a new finance director, Tim Haywood, as part of a process that will see Sir Stanley Clarke, chairman, move to life president.

We said the shares were worth hanging on to after interim results last summer, since when the stock has risen by 21 per cent. But now is the time to take some profits.

Plenty of smoke, but no fire at Molins

Molins, the Milton Keynes-based engineer, produces a range of weird and wonderful machines used by some of the world's biggest manufacturers. They help put frozen foods in their box, the wrappers on chocolate bars, and can produce 6,000 cigarettes a minute.

Unhappily, earnings growth is not likely to be as speedy. The uncertain economic conditions are causing customers to delay spending. Sales of packaging machinery to the likes of Unilever dipped 3 per cent in 2002, and cigarette making machines fell 6 per cent.

Molins turned out a profit of £12.7m in 2002 up from £8.2m, and the shares rallied 5 per cent to 312.5p. But that profit figure was flattered by a £3m pension credit that may not recur. By the end of December, there was a pension fund deficit of £7.3m compared with a surplus of £48.8m a year before. Though the order book for its tobacco machinery business is higher than last year, Molins warns the outlook for the packaging division is less certain.

Analysts predict Molins will make £12m this year, translating to earnings of about 44p a share and putting the stock on a multiple of seven. That does not seem expensive, but until the pensions review is out of the way and until conditions improve, there is no need to buy.