By David Jones

LONDON (Reuters) - Cadbury (CBRY.L: Quote, Profile, Research) must improve profit margins and earnings or become a sitting duck for a bid, analysts said on Friday as the company started trading as a standalone confectionery group.

London-based Cadbury needs to boost margins towards the level of its U.S. peers such as Hershey (HSY.N: Quote, Profile, Research) and Wrigley or it will be too tempting a target to resist for big predators such as Kraft or even a breakup bid from Nestle, analysts added.

The demerger of Cadbury Schweppes is creating a London-listed confectionery group, Cadbury, with brands like Dairy Milk chocolate, Trident gum and Halls cough drops, and a soft drinks group Dr Pepper Snapple Group (DPS.N: Quote, Profile, Research) which will start trading in New York next week on May 7.

Cadbury shares closed unchanged at 640 pence compared to a close on Thursday calculated by Reuters at 640p taking into account the spinoff of Dr Pepper. Shares in Cadbury Schweppes Plc closed on Thursday at 574-1/2p.

Deutsche Bank said with Dr Pepper shares trading at $28 each on the when-issued market, and as Cadbury shares go ex-dividend, this gave a theoretical value for the shares of 630p. Cadbury shares went ex-dividend overnight so shareholders are now not entitled to the 10.5p Cadbury Schweppes 2007 final dividend.

"The key benefit of demerger in our view is that there is now no hiding place from underperformance by Cadbury's management. If it fails to quickly deliver a significant increase in margins and earnings we see the group as a sitting duck for a bid," said analyst Graham Jones at Panmure Gordon.

Cadbury is targeting mid-teen percentage confectionery margins by 2011 from 9.8 percent in 2007, but this will still lag behind Hershey at around 20.5 percent and Wrigley Jr WWY.N at 18.5 percent, analysts said.

Further pressure on Cadbury will come from Mars' $23 billion (11.7 billion pound) planned takeover of Wrigley announced earlier this week and due to be completed later this year, which will knock Cadbury off the No. 1 spot in world confectionery, they added.