Celesio rises on recovery bet after profit warning

By Mantik Kusjanto

FRANKFURT (Reuters) - Celesio (CLSGn.DE) shares surged on Tuesday despite a profit warning as investors bet the biggest drug distributor in Europe was on track to recover from tough competition and price wars.

Analysts said the forcast cut was no surprise for the owner of Britain's Lloyds Pharmacy chain, a rival to Alliance Boots [AB.UL].

"We are convinced the business model is a valid one and that we will see a significant improvement of Celesio's profitability in the second half and more dynamically in 2009," said Martin Possienke, an analyst at Equinet.

Celesio shares, which were down as much 3.4 percent in opening trade, were up 7 percent at 25.98 euros by 0948 GMT, compared with a 0.3 percent fall in the German mid-cap .MDAXI index.

"We expect some investor interest to remain because of the shares' underperformance, strong 20-year track record until 2005 (and the) liberalisation opportunity for the German pharmacy market," said Holger Blum, an analyst at Deutsche Bank.

Pretax profit in the second quarter fell 37 percent to 102.1 million euros ($153 million), above the average estimate of 100 million euros in a Reuters poll of 12 analysts.

Investors are focusing on its longer-term outlook after the company warned of lower profit this year following price cuts at its Lloyds Pharmacy chain and a fierce price war in Germany.

"We have announced our need to take a breath in 2008 in order to process the massive governmental saving measures," Chief Executive Fritz Oesterle said in a statement.