Shares digital

Trading statements from kitchen specialists Waterline (WTL:AIM) and Omega International (OME:AIM) show the yawning gap within this niche section of the home improvement market. Waterline’s made for gloomy reading for investors while Omega’s was much more optimistic.

Waterline, is a distributor rather than a manufacturer and its record as a quoted company has been chequered since floating at 84p in July 2005. The acquisition of Coolectric, the licensed importer of Liebherr domestic and commercial refrigeration, was not a complete success, and it failed to payout a dividend for the 2006-2007 financial year.

There were abortive takeover discussions with a third party last year and a management buyout, believed to be at 65p, was rejected by outside shareholders. With the shares currently trading at 28p they are surely now rueing that missed opportunity. The company has now warned that profits will be ‘significantly lower’ than market expectations.

Meanwhile it has also bought a property for £4.5 million, some £350,000 above Savills’ valuation, from its controlling shareholder and chief executive Michael Lawrence. No adequate explanation has been given for this act of charity and the increase in borrowing this has generated makes a takeover less likely, leaving the shares an untempting prospect.

Omega, unlike Waterline, is a manufacturer operating under the Sheraton, Omega and Chippendale brands. It has enjoyed rapid growth since it was floated at 113p in 2004 and plans to double in size over a five-year period.

The company currently has 3% of the UK market and operates through independent specialists. Its key emphasis is on service – with 97% of orders being supplied on time. Ready-to-assemble kitchens are supplied from stock with 24 hours delivery, while factory assembled kitchens are supplied usually within two to three weeks.

Unlike Waterline the group has enjoyed a strong start to 2008, and Peter Read of Cenkos, the house broker , is forecasting EPS of 24.1p placing the shares on a PE of 10.7. Although the yield is a lowly 1.5%, the group has demonstrated a willingness to pay special dividends in the past.

Shares says: A tale of two fortunes.

BUY OMEGA

AVOID WATERLINE