UPDATE 3-Innovation H1 profit rises, cautious on outlook

* H1 adj pretax profit 4.9 mln stg vs 4.0 mln stg yr ago

* H1 rev 75.5 mln stg vs 64.2 mln stg

* Says no interim dividend

* Shares fall as much as 16 pct (Adds details, CEO comments)

By Purwa Naveen Raman

BANGALORE, May 7 (Reuters) - British software firm Innovation Group Plc (TIG.L) posted higher revenue and adjusted pretax profit in the first half on strong demand for its products and services, but said it would not pay an interim dividend in view of economic uncertainty.

The company, which provides outsourcing services to the insurance industry, said its revenue was impacted by a substantial reduction in motor claims globally.

"We are cautious about the global economy," Chief Executive Hassan Sadiq told Reuters. "In the first half our motor volumes were impacted. Therefore we remain cautious about the second half."

Shares of the company, which recently said International Business Machines Corp (IBM.N) had validated its flagship product Innovation Insurer, fell as much as 16 percent.

"It (the stock) rallied hugely earlier this week on news of the IBM deal, which was old news," Panmure Gordon & Co analyst George O'Connor said by email.

Innovation said it would not declare an interim dividend in view of the economic environment and ongoing investment in the business. However, it said the board would review the dividend situation at the full year.

For the six months ended March 31, adjusted pretax profit was 4.9 million pounds, compared with 4 million pounds a year earlier. Revenue rose 18 percent to 75.5 million pounds.

"The results were a little weaker at the profit level than we had expected but the cash performance was in line," analyst Simon Strong of KBC Peel Hunt said in a research note.

The company said it was making "excellent" progress in meeting full-year market expectations on the back of strong sales conversion and a robust pipeline.

But KBC's Strong, who downgraded the stock to "hold" from "buy", said a weaker first half puts pressure on the business to meet full-year earnings estimates.

Jonathan Imlah of Altium Securities said, "The outlook suggests that full-year estimates are not yet in the bag in spite of outsourcing revenues now accounting for a full 83 percent of group sales."