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The Investment Column: Continental assets pay for McLeod

McLeod Russel, the air filtration and surface coatings group, has maintained consistent progress in the six months to the end of March. Pre-tax profits rose 13 per cent to pounds 4.2m, despite exchange rate losses on the 40 per cent of its profits earned abroad.

Turnover rose less than 2 per cent to pounds 55.9m, but its operating profits were 15 per cent up at pounds 4.8m. Net interest costs increased by a quarter to pounds 571,000 and the tax charge rose from 25 per cent to 28 per cent. Earnings per share rose by a modest 7 per cent to 5.08p.

Air filters again produced faster growth in turnover and profits, compared to surface coatings, which includes Bancrofts, the Birmingham-based industrial-paint suppliers.

The group's residual environmental engineering and industrial property sides shrank in absolute and relative terms to less than 10 per cent of the whole. Last year's filter company acquisitions in Germany and France contributed pounds 300,000 and surface coatings has begun to improve profitability in a generally static marketplace.

Turnover and profits both grew faster on the Continent than in the UK and contributed 27 per cent of sales by origin and 43 per cent of profits in the period. James Leek, McLeod's chairman, expects great things from technology transfers between operating companies and is looking at further acquisitions in the filtration side of the business.

The strength of sterling cost pounds 200,000 in the first half and is set to reduce the second half by a further pounds 300,000. But air filtration is growing 2 per cent faster than GDP, and Ben Thefaut at Albert E Sharp is keeping the company on course for pounds 11m of profits and 13.1p of earnings per share this year, rising to pounds 12.5m and 14.7p next year.

The group's shares rose 1.5p to 150p, valuing them on an undemanding 11.5 times this year's earnings and 10.2 times 1998 earnings.