* Cuts 2009 EBITDA, sales forecasts to "stable"
* H1 EBITDA, sales down less than analysts expected
* Core earnings in waste management down 18 percent in H1
* Shares rally to highest level since November 2008
* CEO rules out acquisitions in 2009
(Recasts with details from analyst conference, shares, analyst)
By Marie Maitre
PARIS, Aug 26 (Reuters) - Suez Environnement cut its 2009 sales and core earnings targets but shares rallied as the French utility group reported forecast-topping first-half profit despite a sharp drop in waste business.
The world's second-biggest water and waste management group behind Veolia said on Wednesday it now expected overall stability in 2009 sales and earnings before interest, tax, depreciation and amortisation (EBITDA) at constant exchange rates.
Suez Environnement, suffering from reduced demand for waste treatment as industrial and commercial clients cut production, had previously forecast slightly higher sales and core earnings.
The stock was up 8.6 percent to a nine-month peak of 14.16 euros at 0952 GMT as analysts welcomed the results and said the outlook downgrade was expected given that the group had previously based its forecasts on a drop of only 2 percent in gross domestic product in mature economies. The International Monetary Fund has forecast a 3.8 percent GDP fall in advanced economies in 2009.
"We think these results are marginally better than bearish expectations. It supports our view that Suez Environnement is a more stable company than Veolia," said analyst Per Lekander.
Earlier this month, Veolia reported a bigger-than-expected drop in half-year profit but kept its financial targets for the full year.
Suez Environnement reported half-year EBITDA of 951 million euros ($1.36 billion), down 4.2 percent at constant exchange rates, on sales down 1.2 percent at 5.87 billion, while net profit reached 175 million against 201 million a year earlier.
This beat average forecasts for EBITDA of 934 million euros and net profit of 144 million from a Reuters poll of analysts as strong performances in European water business and international division helped make up for a poor results in European waste.
Chief Executive Jean-Louis Chaussade said a better second-half performance and increased cost-cutting efforts would help the group "cope with a difficult economic environment."
In the first half of 2009, Suez Environnement, which was spun off from GDF Suez in July 2008, achieved 49 million euros of the 180 million of cost savings it is targeting for 2008 through 2010, Chaussade said, adding he expected the group to meet the 180 million euro goal "sooner than expected".
LOWER WASTE MANAGEMENT
Core earnings at Suez Environnement's European water unit were up 10.4 percent at 420 million euros after new contracts in Spain and France, while the international business generated profit of 197 million euros, up 4.6 percent year on year.
But EBITDA at its European waste unit were down 17.8 percent at 368 million euros as the economic downturn led many industrial clients to cut production and sometimes close plants, reducing their waste volumes.
Despite the worse economic environment, the waste sector remains attractive in the long term thanks to stricter environmental regulation and new waste recovery technologies, Suez Environnement said.
Analysts have said that a lack of recovery in the waste industry has hindered share gains for sector leaders Veolia and Suez Environnement, whose stocks have underperformed the European utility index since the start of the year.
Chaussade ruled out making acquisitions in 2009 but said he expected new opportunities for deals to arise as soon as the economic crisis ended.
"We'll try to build on where we are already strong and in businesses were we are already present. Since 80 percent of our business is in Europe and that we are strong in water in Britain and Australia, you can see where our priorities are," Chaussade said. (Editing by David Holmes and Erica Billingham) ($1=.6997 Euro)