Omega International, recommended by Growth Company Investor at 159p, enjoyed a strong 2005 and business this year is proving sprightly.

For calendar 2005, pre-tax profits sparked up 21% to £4.7m, meaning Omega has now delivered compound annual profits growth of 50% over the last four years. This from sales up a less-than-spectacular 9% to £23.2m, as the operational gearing of the business shone through. This was a creditable revenue result given the current sluggish market for ‘big ticket’ household goods.

Omega reported a great year for cashflow, allowing all bank borrowings to be repaid and enabling a swing from debts of £1.8m to net cash of £2.3m. Omega designs, makes and markets three brands of kitchen furniture – Sheraton, Omega and Chippendale – and its success is based on a robust route to market, selling through a network of handpicked specialist dealers, rather than direct to customers. The group continues to grow its market share by increasing its dealer network on the back of superior kitchen ranges and service, and still only has a meagre 2% of the market, meaning there is plenty of profitable growth to chase. Its industry leading operating margins of 20% could tick higher in coming years.

Omega is looking to double the size of the business over the next five years and will spend £4m this year from cashflow to increase the size of its Doncaster factory. For 2006, Evolution Securities forecasts profits rising to £5.6m, giving earnings of 14.1p and a forward multiple of 13.9. By ‘07, profits could hit £7m. We are pleased to see the shares recovering from a 135p year’s low to a new 52-week high, and remain strong buyers.

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