Although consumer spending on ‘big ticket’ items remains an issue, the market's treatment of kitchen designer Omega International, backed as a buy on these pages at 159p earlier this year, is unwarranted. It remains a firm buy.

First half figures to 1 July, posted back in September, were very strong, with pre-tax profits lifted by 27% to £2m on decent 9% growth at the top line to £11.2m. Earnings growth was a very solid 16% to 5.1p and chairman Bob Murray declared a maiden 0.5p interim dividend.

In a tough market Omega, which designs, makes and markets the Sheraton, Omega and Chippendale brands, improved gross margins to 47.4% (46.2%) and continued to generate healthy levels of cash. A £1.6m net inflow from operations allowed Omega to pay down £1.7m of borrowings in the half year, reducing gearing to a negligible 2%. At the time, Murray and his management team expressed confidence regarding second half growth, as well as hitting full year profit forecasts. Directors have recently bought shares at 158p and 160p, suggesting they still expect to hit their targets.

For the current full year, analysts suggest a jump in pre-tax profits from £3.9m to £4.5m, on higher sales of £24m (£21.3m). Investors can expect earnings of 11.3p (10.2p), placing the shares on a forward multiple of 12.8, falling to 10.3 for 2006. Clearly depressed by weakness in the DIY and housing market, we think this well-managed, cash-generative business looks undervalued.