The implementation of the Vision into Action Plan should stimulate revenue growth and improve the operating margin over time. Cadbury Schweppes PLC (CSG) has already become more focused with the purchase of Adams Confectionery and the divestiture of the non-core businesses, especially the European beverage business. With the de-merger of Americas Beverages expected in May, management will be able to leverage scale and improve profitability by focusing on the faster-growing confectionery business. A Buy recommendation has been re-initiated.
On March 31, 2008, management announced that Cadbury PLC ordinary shares will begin trading on the London Stock Exchange (LSE) on May 2, 2008 and shares of DPSG, Inc. will trade on the New York Stock Exchange (NYSE) on May 7, 2008. Management also provided an update on the de-merger of Americas Beverages ((Dr Pepper Snapple Group -- DPSG Inc.) and announced the financing and capital structure.
Cadbury Schweppes had a net debt outstanding of £3.2 billion ($6.4 billion) as at December 31, 2007. Cadbury PLC will have a net debt of approximately £1.65 billion after the payment of the Group's final dividend and DPSG will have net debt of approximately $3.80 billion (£1.90 billion).
ADRs of Cadbury Schweppes PLC are currently trading at 19.3 times trailing 12-month earnings of $2.39 per ADR. The ADRs have traded in a P/E range of 10 to 26 over the last five years, with a P/E over 20 only having been attained in 2007. The cost savings achieved from the Fuel for Growth Plan have overcome much of the commodity cost pressures.
As the company becomes more focused on confectionary products through the spin-off of the Americas Beverages business, the stock's P/E multiple should expand. The target price is $57.25, which is a 24 P/E multiple on trailing 12-month earnings.
Read the full analyst report on CSG.
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