UPDATE 1-UK's TMN shrugs off weakness in core ad sectors

(Adds CEO comment, reaction, shares)

By Paul Sandle

LONDON, Sept 5 (Reuters) - British digital marketing company TMN Group Plc TMN.L posted a 10 percent rise in underlying full-year pretax profit on Friday, adding it was trading in line with expectations despite a slowdown in key advertising markets.

The group, which rebuffed a 50-pence-a-share approach from rival Tangent Communications Plc (TATNG.L) in April, then saw a management buyout pitched at 70p a share fail because of lack of funding, said it had made a solid start to the year.

"The key ... (markets) of financial and automotive are fairly dormant but there are signs of momentum in other areas," Chief Executive Mark Smith said in an interview.

"Loans and credit cards were big online -- those areas are not there right now," he said. "But there is some exciting growth in online retail."

TMN, which provides lead generation and e-mail marketing for companies including retailer Laura Ashley Holdings Plc (ALY.L) and DVD rental company Lovefilm, posted adjusted pretax profit of 3.6 million pounds ($6.3 million) for the year to end-April, against 3.3 million last year.

Shares in the group, which reached a two-year low of 28-1/2p last month, were unchanged at 30p by 1024 GMT -- well below a recent high of 94p seen last year. At its current price the company has a market value of some 30.4 million pounds.

Analyst Steve Liechti at brokerage Investec said the figures and outlook reflected tougher market conditions, which were unlikely to reverse in the near term.

"Recent deals have met with mixed reactions, but have scaled up the business and given additional diversification into what should be a more robust and fully fledged digital marketing group," Liechti said.

The group moved into affiliate marketing -- in which a web publisher receives a percentage of sales generated by directing customers to partners' sites -- through the acquisition of Internet Business Group in February.

It also expanded into continental Europe by buying Netherlands-based online marking company TAPPS the previous month.

Smith said the deals would continue to dilute earnings in the short term, but would help build a stronger group in the longer term.

The acquistions helped boost revenue by 40 percent to 22.5 million pounds, he said. (Additional reporting by Tresa Sherin Morera in Bangalore; Editing by David Holmes)