Retailer Casino hits back at short-seller's critical report

* Casino says business solid, finances sound

* Muddy Waters says transparency "long overdue"

* Shares (Berlin: DI6.BE - news) dip again after big fall last week (Adds analyst comments, details)

By James Regan

PARIS, Dec (Shanghai: 600875.SS - news) 21 (Reuters) - French supermarket chain Casino launched a fight back against research and investment firm Muddy Waters on Monday, issuing a detailed rebuttal of a critical report the short-seller published last week.

Casino said it had "solid business dynamics" and its debts were manageable and underpinned by a recovery in its business.

Casino's shares, which fell more than 10 percent after San Francisco-based Muddy Waters published its investment note last week, closed down 4 percent, against a 1 percent drop in the CAC40 index of leading French stocks.

Muddy Waters said last week that Casino was being run primarily for the benefit of its controlling shareholder, Rallye SA, at the expense of its own long-term development.

The research and investment firm said Rallye forced Casino to pay large dividends rather than use the cash to pay down its excessive debt pile and grow its business, because Rallye needed the money to service its own debts.

Muddy Waters also said Casino flattered its earnings by including in them, the full profits of companies it only part-owned and accounting for property deals in a way which was misleading.

On Monday, Casino again rejected Muddy Waters' allegations.

Casino said it was compelled by accounting rules to include all the profits from part-owned subsidiaries in its accounts and the fact that not all the money came to Casino was transparently disclosed in its filings.

Similarly, Casino said it included profits from the sale and leaseback of its properties in its operating earnings -- even though some peers do not always do this -- because it deemed commercial real estate a core business, alongside retail.

Casino did not address the accusation that its decision to channel so much of its free cashflow into dividends and to sell fast growing assets to raise further cash was driven by Rallye's need to service its own debts.

However, the supermarket chain said its dividend was affordable and its planned deleveraging plan, including the sale of its Vietnam operations, which Muddy Waters criticised, would help ensure it retained its investment grade debt rating.

Casino shares pay a dividend yield of 7.1 percent. Metro AG (Xetra: 725750 - news) pays 3.5 percent, Carrefour (Paris: FR0000120172 - news) 2.6 percent and Tesco (Xetra: 852647 - news) 0 percent, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

Casino also issued new earnings guidance saying earnings before interest, tax, depreciation and amortisation (EBITDA) from its French operations for the second half of 2015 "should significantly exceed" the year ago level.

It (Other OTC: ITGL - news) added that for 2016, it expects a "clearly improving margin trend" in France and that cash flow would be 200 million euros ($217.70 million) above debt costs and dividend payments.

Some analysts said while Casino's accounting methods meant its earnings statements were not comparable to some peers, the issues raised by Muddy Waters were well understood and that Casino's practices were within accounting rules.

"This is a solid response from Casino, pointing out where Muddy Waters has misrepresented the company and providing some good additional colour and guidance to give faith to the bulls on the stock," Bernstein analyst Bruno Monteyne, who rates Casino "outperform" with a target price of 70 euros, said in a research note.

OctoFinances credit analyst Alain Lopez said that ratings agencies had treated Casino "with indulgence" compared with the likes of Tesco, given its higher net debt-to-EBITDA ratio.

"Overall, the Muddy Waters report would appear to be excessive in its assessment of the economic value of Casino but it at least dares to criticise, loud and clear, a number of the issuer's doubtful practices," Lopez wrote.

Muddy Waters said last week it had shorted shares and credit in Casino and Rallye, a strategy that involves borrowing a financial instrument and selling it on the expectation of buying it back at a cheaper price, making a profit when it falls.

Its founder, Carson Block has targeted a number of Chinese companies, as well as Swedish telecoms firm TeliaSonera (Amsterdam: 1087941.AS - news) and commodity trader Noble Group (Dusseldorf: N2X.DU - news) .

Muddy Waters said Casino shares were worth as little as 6.91 euros. They started the month at close to 54 euros.

Casino said that the average target price from a consensus of 23 analysts was 55 euros per share as of Friday.

In an emailed statement from Muddy Waters, Block said: "Transparency from Casino on these key issues is long overdue. Investors would benefit from meaningful and straightforward disclosure."

($1 = 0.9187 euros) (Writing by Emma Thomasson and James Regan; Additional reporting by Matthias Blamont; Editing by Louise Heavens and David Evans)