Cadbury and Associated British Foods are two companies in the food producers sector that are listed on the London Stock Exchange. Cadbury is the largest global confectionary manufacturer along with inroads in the beverage industry and being one of the most up moving companies on the LSE, it is also included in the FTSE 100 index. Associated British Foods similarly is a large company with multinational operations also included in the FTSE 100 index.
Looking at the sequence of share prices that the stocks of both companies have followed, one can see slightly different trends being taken because of the market forces. Cadbury particularly has seen much volatility since 2007 which can be ascribed in part to the volatile situation of the global economy. It began at around the 650 pence mark with a slight upward movement around the start of June in 2007, reaching a high of 725 in July before the stock began a gradual plunge.
The stock price fell to comparatively a very low level around the mid of August, even going below the 550 mark before it got steadier. It remained steady at around that point up till May of 2008, after which it saw a sudden and extreme rise, going up nearly 14 percent and reaching a high of above 700 before getting steadier. The stock fell again however following the mid of September reaching its lowest point in more than 3 years in mid-October with a stock price below 450 pence. There was some recovery after that but the stock didn’t return to the extraordinary levels it enjoyed in mid-2008, keeping to around the 550 mark (Cadbury Share News 2009).
Some of this volatility that the Cadbury stock experienced can be attributed to the news surrounding the company’s progress. Its rise in June 2007 can be attributed to a great extent to the market forces as well as perhaps the results of the period being announced. However, the subsequent decline in July can be explained by the Salmonella contamination that plagued the food industry. On 16th July 2007, the company was fined one million sterling by a Birmingham court.
This was on account of the company’s failure to prevent its salmonella-contaminated products from reaching the market. This initiated a downward trend that was further augmented by the uncertainty surrounding Cadbury’s separation of its confectionery and beverages business and possible combination of the latter with Cott Corp in America which had recently released relatively weak second-quarter results.
Then the credit crisis that the world has become plunged in started affecting the business as there was mounting speculation over the trouble Cadbury was facing with regards to the sale of its US soft drinks division which was continuously being delayed because of the credit crisis in the United States and eventually came to be listed as a discontinued operation on the financial statements. This was followed by the first-half earnings being released on the first of August is considerably lower due to higher investment and input costs. All this prompted the stock to fall to below 550 by mid-August 2007. After that, the stock remained relatively steady around the 600 mark up till May of 2008 (Cadbury Share News 2009).
The sudden explosion of the stock price following 7th May was on account of the announcement regardingthe successful de-merger of the company’s American beverage unit, changing it from Cadbury-Schweppes to Cadbury plc. Now that the volatile beverage unit was off, investors found the stock more favorable, augmented by a rating adjustment by Moody’s. The upward level remained until the mid of September when the stock price plunged again on account of the already blooming crisis and news of the sale of the beverage unit in Australia that was speculated to be underbid because of the financial crisis (Cadbury Share News 2009).
This was worsened by Cadbury having to withdraw some of its products from the Hong Kong market on account of Melanin contamination concerns and the step down of the company’s CFO at the start of October. The credit crunch was also hitting the market hard leading to the lowest stock price for Cadbury in three years. After that, the stock did however recover a bit following growth in the Russian market.
The stock price of Associated British Foods was relatively more stabfewerith less up and downturns compared with Cadbury. It started at around 800 pence in 2007 and rose to a high of 950 around May after which it saw a steady decline to below the 850 mark by mid-July which further dipped till September. Then the stock saw resurgence and remained around the 850-900 mark except for a brief dip at the end of January 2008. This was followed by a generally stable period before the stock began to decline in value from June with a brief up period in August and September of 2008 before reaching its lowest value for two years in mid-October. After that, the price zigzagged around the 650-700 mark but never went considerably up (Associated British Foods Share News 2009).
The stock remained high at the start of 2007 on the back of good result the product’s markets market. However, it experienced the decline around June 2007 in part due to the announcement of an EU inquiry deadline for BP, Associated British Foods, and Dupont over a joint venture biofuel plant in the UK. This was augmented by the credit crunch taking its toll on the company operations as well. It also got hit by the devaluation in the sterling which hit earnings.
One estimate was 19 million sterling lost by the decline in value. However the price started to pick up on account of higher than expected earnings announcement which persisted through November and December of 2008. A sudden dip came in mid January on the expectation of EU sugar reforms which was crucial for the company. Then stocks recovered and remained steady until a decline came with news of the company merging Ryvita with Jordan.
This was further worsened by EU merger review and the news that three factories had been sacked in India after revelations of contracting child labor. They picked up again however after the news of the appointment of a new independent non Executive director and rise in Primark sales. Stocks then reached their lowest point on account of the international financial crisis as it hit the UK hard. The stock remained relatively stable at that level after that (Associated British Foods Share News 2009).
Seeing the trend these shares have taken, one gets a general idea that the Cadbury stock has been more volatile compared to the Associated British Foods stock. Both have seen their prices declining on account of the declining condition of the global economy, and the global financial crisis. However, it is seen that the volatility in Cadbury’s stock price has been more due to the trouble its beverage unit encountered in the US and in Australia regarding the new bids as well. Now that the company has been successful at de-merging and is expecting growth through its confectionary business, with rapid growth in the Russian market, it can be said that it is a good stock with potential for high return after dumping the beverage segment.
However, the stock is still risky due its considerable up and down moves and therefore should be preferred by more risky investors. Associated British Foods has been less volatile and may be preferred by risk avoiding investors as it has remained steadier over longer periods. One point to be taken into consideration is that the Cadbury stock was also affected to a great extent by one-off events such as the Salmonella outbreak and the Melanin problem in Hong Kong. The company now appears to have dealt with the problem and even built some good will through acting more socially responsible. Therefore, it can be considered less volatile in the future and may be a good investment, especially since it appears to still give better returns in the financial crisis as well.
References
Associated British Foods Share News [online]. London Stock Exchange. Web.
Cadbury Share News [online]. London Stock Exchange. Web.