Bottom Line: Speaking volumes

THE 30 per cent outperformance of the building materials and construction sectors over the past year owes a lot to one conviction. Just as companies were forced to cut costs sharply to survive the slump in demand, so relatively small increases in volumes will produce sharp improvements in profits.

That was vindicated by Meyer International yesterday. While sales in the six months to September rose by 11 per cent, margins expanded by a fifth to 4 per cent, pushing operating profits up 34 per cent to pounds 24m. At the pre-tax level, a drop in interest charges - courtesy of April's pounds 70m rights issue - meant that profits more than doubled to pounds 19m.

The effect was most pronounced in the Jewson builders' merchant chain, where a 5 per cent rise in like-for-like sales was translated into a 45 per cent profits increase as margins were boosted from 3.4 to 4.8 per cent. John Dobby, who took over as chief executive in September, attributes half the improvement to cost-cutting and says: 'We can add quite a lot of sales before costs have to rise again'.

Those volumes may, however, be slower to arrive than expected. Margins are unlikely to rise further in the second half and there is no sales boom. Forecasts of pounds 38m for the full year - more than double last year's - and pounds 49m next indicate impressive growth. But that is already reflected in the shares, up 7p at 449p yesterday, putting them on more than 16 times 1995 earnings.