The strong cocoa market will not dent Barry Callebaut shares, Credit Suisse analysts said, as prices of the bean hit their strongest since the year Elvis Presley died.

The Swiss chocolate group, whose operations include production under the Cadbury, Hershey and Nestle brands, will be protected from a market which has jumped more than 40% since the end of June by its policy of passing on higher cocoa costs to consumers, the investment bank said.

For about 80% of its sales volumes, Barry Callebaut charges on a "cost plus" basis, which it can get away with thanks to the relatively weak impact of price rises on chocolate demand.

"Barry Callebaut has been able so far to pass increases in cocoa prices onto its customers owing to the relative inelastic nature of demand for chocolate and the fact that the cocoa bean price is only a small fraction of the selling price to consumers," Credit Suisse analysts said, pegging the proportion at 20-25%.

"Historically, the group's exposure to the volatile cocoa market has had a relatively limited impact on earnings."

Waiting game 

However, Credit Suisse warned of a hit of about SFr80m to the group's free cash flow because of the need to tie up extra money in cocoa stocks.

And the bank rated Barry Callebaut shares as "neutral", with a price target of SFr675m, highlighting that it relies for 70% of sales in the slugging European market.

"We see no rush to invest in the shares, and recommend investors to await more attractive entry levels."

The stock closed up 0.9% at SFr647.50.

Price top 

The note came as cocoa prices for the second contract, May, considered by many as the benchmark lot, hit £2,290 a tonne, the highest since 1977.

The near-term, March contract, hit £2,273 a tonne, the highest for a spot lot since September 1984.

The rises followed lingering concerns that Ivory Coast, the top-ranked producer, will be able to maintain a strong start to the main crop harvest, leaving the globe facing a fourth-successive year where output will fall short of demand.

However, prices weakened to close down £11 at £2,257 a tonne for March delivery and down £14 at $2,273 a tonne for May.

Technical indicators for cocoa were still showing a risk of falling prices, analysts at Sucden Financial said.