Cadbury, under siege from a bid by Kraft, will look to paint a picture of growth at next week's update to try and see off the predator with analysts focusing on sales, volumes and margin trends.

The world's second largest confectionery group issues a third quarter update on Oct. 21 after rejecting a 10.2 billion pound ($16.57 billion) bid proposal in early September while the UK Takeover Panel has given Kraft until Nov. 9 to come up with a firm bid.

Britain's Cadbury is not expected to say anything new on the bid in its update but will look to bolster its defences with an upbeat trading statement, but analysts say it may have limited room and may only be able to reiterate its 2009 sales and margin targets.

Many analysts believe Kraft will wait until after its own third quarter results on Nov. 3 before increasing its bid, with most saying it will have to offer 850 to 900 pence per share to win Cadbury board approval and not turn to a hostile bid.

Kraft's cash and share offer initially valued Cadbury shares at 745 pence, or 10.2 billion pounds, but the fall in Kraft shares makes it worth 723 pence, against a Cadbury price 788 pence by 1205 GMT.

We strongly believe that Cadbury shareholders should reject any offer below 850p, particularly if it contains a high level of equity... The current terms look ludicrously low to us, said analyst Graham Jones at broker Panmure Gordon on Friday.

He expects Kraft to raise its offer to 800 to 850 pence with the cash element of the bid increased to 400 pence from 300 pence, and expects Kraft to put the offer directly to Cadbury shareholders if the Cadbury board does not recommend the offer.

A MATTER OF TIMING

Looking at the trading update, analysts say Cadbury may struggle to give an upbeat tone as it will compare with a strong third quarter last year, before the worst of the downturn hit and ahead of price rises pushed through in the final quarter of 2008.

They point out that because big price rises were pushed through in late 2008, it will be into 2010 before tough comparisons fall away and growth will be easier to record, but by then a Kraft deal may have been sealed.

Of course it all shows that Kraft had its timing right with its bid, trying to get it all wrapped up before Cadbury's growth gets a boost from easier comparisons, said one analyst.

In July, Cadbury reported a 4 percent rise in underlying sales and reiterated it will see year growth at the lower end of its medium term 4 to 6 percent growth range, with most analysts believing third quarter sales will again rise 4 percent.

This 4-percent half-year rise was made up of 6 percent from higher prices and a 2 percent decline in volumes, so any improvement in volume in the third quarter will be closely watched, they added.

First-half growth was led by a 10 percent rise in chocolate sales while gum and candy were flat, and analysts see slower chocolate growth and returning growth for gum and candy in the new quarter, which is key as gum and candy have higher margins.

I would say anything better than 4 percent sales, better than flat volumes and increased margin guidance will be viewed as positive by the market, said another analyst.

In July, Cadbury raised its margin guidance for 2009 to see a 80 to 100 basis points percentage rise, towards its goal of mid-teen percentage margins by 2011, after 11.9 percent in 2008.

When Kraft reports early next month, analysts expect earnings to rise to 48 cents a share from 44 cents a year earlier, according to Thomson Reuters I/B/E/S.

Kraft has cut costs and increased spending on advertising and product development to help boost earnings, while the stronger dollar and divestitures have held back revenue growth.

Analysts believe a joint counterbid from Nestle and Hershey is possible rather than probable for Cadbury, so their third quarter results will be examined when both report quarterly earnings on Oct 22.

Analysts expect Hershey to report earnings on average of 68 cents a share, compared with 64 cents a year earlier, excluding one-time items. They say price increases helped lift sales and the company has also benefited from consumers trading down to lower-priced candies from fine chocolates during the recession.

($1=.6157 Pound)

(Additional reporting by Bradley Dorfman in Chicago) (Reporting by David Jones; Editing by Hans Peters)

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