Broker tips: Cadbury, Wetherspoon, FirstGroup

4th Nov 2009 13:09

The share price of Crème Egg maker Cadbury was looking a little runny on Wednesday morning as hopes of US predator Kraft Foods upping the terms of its proposed offer for the UK company faded.The US company announced a dip in third quarter earnings after the bell yesterday and lowered its full-year net revenue guidance, prompting a fall in the share price that will devalue the equity element of any offer by Kraft for Cadbury.The market had been hoping for Kraft to launch a knock-out bid of 800p or more, but JP Morgan Chase now believes Kraft is unlikely to go higher than 780p and suggests 'such an offer with only a 30% stock component may be enough.'Panmure Gordon believes that the disappointing third quarter results from Kraft will not help the US company's cause, but the news about the bridging finance does at least raise the prospect of Kraft boosting the cash element of its bid.'Apart from the usual bluster from Kraft about not over-paying, the only real new news was that Kraft has raised $9bn of bridge financing, which is enough to raise the cash element of the bid from 300p to 400p as we have previously suggested,' writes Panmure analyst Graham Jones.Panmure Gordon has a price target of 900p and a 'buy' recommendation for Cadbury but reckons the share price could head south to 700p if a bid fails to succeed, or even materialise.Charles Stanley has reiterated its 'buy' recommendation for JD Wetherspoon after the pub group's trading statement.The broker has previously suggested that the only possible cloud on the Wetherspoon horizon has been the group's refinancing, targeted for the first quarter of 2010, but Charles Stanley analyst James Dawson is encouraged by the group's assertion that it intends to start formal refinancing discussions by the end of the year.The broker has a 600p price target for the stock.Investec has also issued a 'buy' note on the company, saying that the 'planned VAT increase remains the biggest negative risk for Wetherspoon (and other pub operators) but is unlikely to prevent future upgrades.'Collins Stewart is a dissenting voice, noting that the LFL sales growth figure of 0.3% 'suggests negative territory later during the [company's] first quarter, since the first five weeks started 1.2% up.'The broker believes underlying trading is soft 'which is likely to manifest itself in increasingly weak like for likes from the second quarter onwards.'Collins Stewart has reiterated its sell recommendation and 400p price target.Results from bus and train firm FirstGroup were marginally better than expected, in the view of Panmure Gordon, which has reiterated its 'buy' recommendation on the shares.The broker believes the shares are 'attractively valued', trading on a price/earnings ratio (PER) of 9.1, based on estimated earnings for fiscal 09/10, and a PER of 7.8 based on earnings forecasts for fiscal 10/11. The projected dividend yield of 5.5%, based on anticipated dividend payments for 09/10, also underpins the share price.