KEY POINTS:
Rakon shares have been gleaming like the quartz crystals it produces after the company's stunning annual result - and its forecast of better things 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 shares were issued at just $1.60 each in April last year and listed at $2.40. Yesterday they closed at $5.49.
Rakon has a market capitalisation of just over $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 GPS (global positioning systems) technology used in navigation devices, cellular phones and missiles and smart bombs.
Having soared into the top 50 index in March, it is now in the top 30, ahead of solid performers such as the Port of Tauranga and Nuplex, and snapping at the heals of Mainfreight and Tower.
Last week 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.
The company forecast revenue would double to about $200 million to $220 million, with ebitda (earnings before interest, tax, depreciation and amortisation) increasing to between $32 million and $38 million from $20.3 million this year.
While mum and dad investors and some institutions reacted to the headlines, some analysts were disappointed their high expectations were not met.
First NZ Capital's Jason Familton had forecast volume growth of 43 per cent and it came in at 40 per cent.
Still, Familton said Rakon was unique as a New Zealand company in that it had 50 to 60 per cent of the world market for its main product in a market that was growing significantly - at 60 to 80 per cent in North America.
"There's not that many New Zealand companies that have that market share in a market growing that quickly," he said.
"The share price and market capitalisation reflect the growth opportunities Rakon has."
Based on the earnings projections for next year, Rakon is now trading at a price earnings ratio of 35, which compares with Fisher & Paykel Healthcare's 29.
What makes Rakon's performance even more commendable is that it exports virtually all its production, despite the high exchange rate.
While Rakon is not on the scale of Finland's Nokia, which 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 technology companies, Google, Hewlett Packard and YouTube among them, Rakon had a humble start.
With some luck and much perseverance, the company that began in a basement 40 years ago, has taken off just in the past few years.
Founder Warren Robinson originally made 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 consumer applications, including cellphones and GPS systems in cars and personal navigation devices.
It is now a US$20 billion ($27.5 billion) global market.
In last week's briefing, Brent Robinson said growth for personal navigation devices had taken off this year and the use of GPS technology in third-generation cellphones was growing strongly.
While competition and the normal commoditisation process of the technology was depressing prices by 8 to 9 per cent a year, volume growth was more than offsetting this.
Rakon wants to expand its manufacturing in China but it also plans expanding at home, where two-thirds of its 750 staff work.
The company has cut dependence on its TCXO line from 90 per cent to 50 per cent after the $50 million 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 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. It blamed neither the dollar nor government policies for its move: 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 Robinson.
The Robinson family still owns 34 per cent of Rakon and Navman founder Peter Maire owns 19.9 per cent. 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 $100 million 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.
Familton said Rakon had an astute board and management. "Things really are starting to come to fruition," he said. But he warned of the share price: "It may have got a little bit ahead of itself."
- NZPA
