The Board of Cadbury Nigeria recently discovered overstatement of the Company ’s financials and consequently requested that the financials be screened by PricewaterhouseCoopers (Chartered Accountants ). The outcome is an overstatement of bottom-lines by about N1.5 billion resulting from different Financial shenanigans employed by the Company to achieve this. Prior to the outcome of the investigation, the Stock which was previously enjoying an average Daily volume trade of over about 500,000 units was placed on Technical suspension. Trading volume declined to a Low ebb average of 30,000 units while still expecting the outcome of the investigation panel. From the Information made available by the Company , the current year loss is forecasted to be about N5.0 billion and as at September 30 2006, the Company ’s Net Asset Value (NAV) has come down to at least about N1.0 billion. Given this scenario, we STRONGLY RECOMMEND A SELL based on the following analysis: v The Company currently has 1,100,842,666 shares outstanding Out of which 46.3% is held by the parent Company - Cadbury Schweppes Overseas . v In correcting the financials, the Company ’s Net Asset Per share (NAPS) has dropped from N10.86 as at December 2005 to about N0.99 as at September 30, 2006 resulting in about 91% drop. v Earnings Per share (EPS) has entered the negative zone from a positive figure of N2.70 as at year ended December 2005. v Given the Nigerian investing Public with pricing mentality based on Benefits (bonus and dividend) , dividend payment for the next two years would be denied as well as bonus issue for not less than five(5) years after utilizing the available Capital reserves to absorb losses. In the same vein, the resulting Capital reserve from planned revaluation exercise is also not available for capitalization issue. v Though the Company has a very good margin at an average of 20% CAGR, huge expenses would have to be committed to re-branding thereby eating deep to the upshot. v Trade receivables as a percentage of turnovers has increased from 23% in 2004 to 31% in 2005. This portends another signal for bad debt provision. v The parent Company may salvage momentum drop in Value given the number of floats outstanding (53.73%), we recommend a SELL before the support level v The Company ’s Price is expected to drop significantly on the floor of the Exchange with Daily volume surge at a declining Price trend. With a Net Asset of about N1.0billion the Stock is expected to be on a serious offer on the floor and will most likely in trade below N15. v Price will drop significantly in the coming weeks. However, the Price level will initially stabilize at a range of N10-N15. Price thereafter will depend on the actions of New Management team and recovery performance of the Company in 2007 fiscal year. v Bye and large, we Are of the opinion that Cadbury ’s Price may not get to the current level in the next 5 years. Attachment : BRIEF-CADBURY_NIGERIA_PLC DECEMBER2006.pdf -------------------------------------------------------------------------------- MERISTEM Securities Ltd . 124 Norman Williams Street, South West, Ikoyi, Lagos . P.O Box 51585 Falomo, Ikoyi, Lagos . Phone:234-1-2717350-5; Fax: 234-1-2717356, 2690118. Website:www.meristemng.com E-mail:info@meristemng.com