KEY POINTS:
Rakon shares this week gleamed like the quartz crystals it produces after it produced a stunning annual result and a forecast of better to come.
This is one of the few "real" companies to have listed on the stock exchange in recent years -- as opposed to diversified
funds.
The stock was already a standout performer, but raced 7 per cent ahead to a record $5.39 per cent but then lost half of that gain.
The shares were issued at just $1.60 each in April last year and listed at $2.40.
At Wednesday's share price the company had a market capitalisation of nearly $700 million, four times what it was valued at at during the initial public offering.
Rakon-designed quartz crystals are used in frequency control devices at the heart of most GPS (global positioning systems) technology, used in navigation devices, cellular phones and missiles and smart bombs.
Having leapt into the top 50 index in March, it is now in the top 30, ahead of solid performers like Port of Tauranga, and Nuplex and snapping at the heals of Mainfreight and Tower.
On Tuesday, it announced its net profit rose 122 per cent to $10.65 million on a 43 per cent rise in revenue to $106.2 million.
Revenue was 17 per cent up on last year's prospectus forecast and the bottom line was up 47 per cent.
The year ahead will, if anything, see the growth rate accelerate.
It forecast revenue would double to about $200m-$220m with Ebitda (earnings before interest, tax, depreciation and amortisation), increasing to between $32m and $38m from $20.3m in 2007.
While mum and dad investors and some institutions reacted to the headlines, some analysts expressed mild disappointment their very high expectations were not met.
First NZ Capital's Jason Familton had forecast volume growth of 43 per cent and it came in at a mere 40 per cent.
Still, Mr Familton notes Rakon is unique as a New Zealand company in that it has 50-60 per cent of the world market for its main product in a market that is growing significantly -- at 60-80 per cent in North American.
"There's not that many New Zealand companies that have that market share in a market growing that quickly. The share price and market capitalisation reflect the growth opportunities Rakon has, said Mr Familton.
Based on the 2008 earnings projection, Rakon is now trading at a Ritzy price earnings ratio of 35 times, which compares with Fisher & Paykel Healthcare's 29 times.
What makes Rakon's performance all the more commendable is that it is company that exports virtually all its production and has performed against a backdrop of a very unfriendly exchange rate.
While Rakon is not on the scale of Finland's Nokia, which has been such a phenomenon it has hugely lifted that country's GDP and living standards, it has that kind of potential.
Like some of the world's fastest growing and best known high tech companies, Google, Hewlett Packard and YouTube, Rakon started in garage -- actually a basement.
With some luck and much perseverance, the company that began 40 years ago, has taken off just in the last few years.
Founder Warren Robinson originally manufacturing crystals for marine radios, but demand dried up and he quickly had to find a new product to keep the company on track.
Son Brent, now managing director, began investigating temperature-compensated crystal oscillators (TCXOs), which were just starting to be used as cellular phone components.
TCXOs are ultra high accuracy quartz crystals and an essential part of GPS.
Rakon won its first TCXO contract in the mid-1980s from NEC Australia but was left in the lurch when NEC switched manufacturer.
A chance response to a magazine ad for GPS receivers placed by US aerospace company Magellan Systems set Rakon on its way.
By 1991, global GPS brands Magellan and US defence giant Rockwell were ordering Rakon-built TCXOs.
From there it commercialised the military product for use in multiple consumer applications, including cellphones and GPS systems in cars and Personal Navigation Devices (PNDs). It is now a US$20 billion ($27.5 billion) global market.
In Tuesday's briefing, Brent Robinson said growth for PNDs had taken off in the second half of 2007 and the use of GPS technology in third generation cellphones was also getting strong lift-off.
While competition and the normal commoditisation process of the technology was depressing prices 8-9 per cent a year, volume growth was more than offsetting this.
Rakon is looking to expand manufacturing in China and is in talks to find a partner, but it also plans expanding at home where two thirds of its 750 staff work.
Rakon has cut dependence on its TCXO line from 90 per cent to 50 per cent following the $50m purchase in March of the Frequency Control Products division of French company, C-Mac MicroTechnology.
Demand for some of the new products, in particular OCXOs (Oven Controlled Crystal Oscillators), is so strong French production lines would be augmented in New Zealand.
Although China is seen as important as both a market and a production base, Rakon has no plans to abandon its New Zealand base.
This week, the depressing news was delivered that high tech Christchurch company Dynamic Controls was moving 200 jobs to China. Dynamic is a company doing everything the Government wants in terms of creating a high, skill, high wage economy. In turn it blamed neither the dollar nor government policies -- it said it simply needed to be closer to its customers and suppliers.
Rakon differs from many New Zealand listed companies in one other important and refreshing aspect -- it pays no dividends, and has no intention to do so.
"We are a growth company so we are going to be using all our resources for growth rather than for paying dividends," said Brent Robinson.
The Robinson family still owns 34 of Rakon while Navman founder Peter Maire owns 19.9 per cent.
Mr Maire will be wary of seeing what happened to Navman repeated.
He sold Navman, which also made GPS equipment, to US marine products giant Brunswick, expecting it to go from a $100m turnover company to a $1 billion one. But halfway to that goal, Brunswick had a change at the top and Navman was left unloved and eventually sold in some disarray to Scandanavia's Navico.
Mr Familton said Rakon has got a very astute board and management.
"Things really are starting to come to fruition for the company," but he warns of the share price: "It may have got a little bit ahead of itself."
- NZPA