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If you are looking for a company that has financial history and track record then look no further Cadbury is one of such. If you are also looking for one that is scandal free, high on margins and with ROE higher than 20% then Cadbury certainly isn’t the one. Cadbury posted a N24b revenue for the first 9months of the year representing a 2.4% year on year drop. Just as expected the drop in revenues cascades down to bottom line as operating profit slipped 5.6% to N1.8b in the period under review. Even the margins reflects the negative impact of the dip in revenue this year. But no need to fret, the chocolate maker’s full year revenue of N34b last year was a 16.9% year on year growth, the highest since 2008 and making this period dip innocuous. Heck, things may just improve by year end.


So rather than worry about revenue, other benchmarks worry me. Inventories is one of such and an inventory of N3.5b (39%) higher than last year should give one the shudders. Does this mean they are finding it harder to sell products? Inventory turnover of 52days suggest that. Cadbury  sits a cash pile of N13b with more than 90% of that flowing from prior year activities. Cash is king and no one can fault that, even though some expect the company to spend much more than the N367m it has spent investments. In response, the company has spent N1.8b in the last 21months on investment. A look at return on assets suggest margins is where the problem lies and not assets. The company simply can’t turnover inventories quickly enough.


Competition is rife and expenses aren’t budging either. With N13b in cash surely, Cadbury can produce more. But whats the point producing what you can’t sell. Share price is currently N25  50x trailing Eps and 37x current Eps. Pricey you might think but people will tell you to look at cash which currently is N4.2 per share 6x less than price. Net Asset per share is also around N6. In other words the current share price is trading at 6x its cash at hand and 4x its net asset per share. Is it time for me to buy yet? If I knew what I did now about 7 months ago answer would be yes. Then the share price was N11….chocolate is sweet but nothing is sweeter than a bargain price.

Cadbury Plc 9 months 2012 unaudited Financial Statement is posted on the website of the NSE



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