Suggesting that the confectionery and soft drinks manufacturer is unlikely to announce the demerger of its businesses, Merrill Lynch has cut Cadbury Schweppes’ rating from ‘buy’ to ‘neutral’.

The news has caused shares in the company to decline to 553.50 pence (US$10.31) in morning trade today (16 October) from a previous close of 557.50 pence.

Merrill Lynch said that it cut the confectioner’s rating because it does not foresee the announcement of a demerger at the company’s investor day on 30 October.

Merrill Lynch calculated the demerger of the company’s US beverage business at a 15%-20% discount, leaving the confectionery units trading at 10.5 times EBITDA, compared to its US peers which are trading at an average of about 12.5 times their earnings.
According to Merrill Lynch analysts, placing Cadburys confectionery assets at parity to its US confectionery competitors would establish a value of 640 pence, around 15% over its current price.

However, the investment note warned that the return of invested capital at Cadbury’s confectionery businesses was lower than the company’s competitors and added that the company is unlikely to dispose of its US beverage unit in the near-term.

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