Confectionery and soft drinks group Cadbury Schweppes looks undervalued, according to a positive note on the business this morning from JP Morgan.
Following the planned demerger of Cadbury's drinks business for around £6.2bn sometime in the second quarter, the bank thinks the remaining chocolate business does not reflect any takeover potential, and values it at £11.4bn. The company's current market capitalisation is a little more than £12bn.
The bank said: "Post separation, Cadbury plc will become the only listed pure-play in the global confectionery sector with an open shareholding structure and we think that no one in the industry can afford to ignore such a unique consolidation opportunity."
More immediately, on February 19, the company plans to update the market on the capital structure of the drinks business. "We think management could announce that [beverages] will be geared up to 4-4.5 times net debt implying Cadbury could return £700m to £1.2bn to shareholders (representing 36p-60p per share)."
On top of all that, the company has an activist investor in the shape of 4.5% shareholder Nelson Peltz, who has been agitating for a large cash return to investors.
Cadbury's shares are down 2.5p at 585p, slightly outperforming the market at the moment.
