An analyst has forecast a bumper 2022 financial year for NZX-listed technology company Rakon as its stands to benefit from the disruptions in global supply chains caused by Covid-19.
Rakon’s share price has already risen sharply in the last year and as of Friday’s sharemarket close the electronic components maker was up 234 per cent to $1.79 over the last year.
But Forsyth Barr’s James Lindsay has placed a spot valuation on the stock of $2.26 and forecast net profit after tax of $31.2 million in its 2022 financial year – more than triple the $9.6m it made in FY2021.
“The stars have aligned for Rakon during FY22 as a beneficiary of the disruptions in global supply chains.
“These disruptions have opened the door to several new customers, providing management the opportunity to create enduring relationships, similar to that with its existing customers all while pushing higher specification products,” Lindsay said in a note released to clients today.
Last week Rakon announced its chief operating officer Dr Sinan Altug will take over from Brent Robinson as Rakon’s chief executive officer from April 1, 2022.
Although Robinson, who has led Rakon’s executive team for more than 35 years, will remain at the company in the role of chief technology officer, and will also remain on the board as an executive director.
Lindsay said the three critical drivers for Rakon’s growth would be the long-tail growth of 5G and data centre infrastructure, low-earth orbit networks and autonomous vehicles.
“Rakon sits at the leading edge of these segments as it tilts away from the highly competitive, and lower margin, consumer products.”
Lindsay said Rakon was currently priced at a 20 per cent discount to its discounted cashflow valuation of $2.26 per share.
“The market is undervaluing the opportunities for growth in 5G, data centres, and NewSpace (LEO satellite deployments), in our view.
“Rakon’s refresh of its strategy a few years ago to tilt towards less volatile segments has seen margins stabilise and grow, and enable a lessening of risks and revenue volatility. We believe the refocused strategy will enable Rakon to outswim some of the
inevitable return, either in FY23 or FY24, of competitive pricing pressures.
“Rakon has an experienced and highly capable management team, focusing on technology leadership and shareholder value in a competitive industry.”
Lindsay also recommended the company withhold any dividend payouts in FY22 or FY23 and invest the money into the business instead.
“While Rakon has the opportunities ahead of it in growth markets, like 5G, data centres and low-earth-orbit satellites, or in accretive acquisitions, we see it as significantly more prudent for management and the board to retain funds to invest in the business and maintain a solid balance sheet.”
Lindsay is forecasting net profits to fall back to $19.5m in FY23 before rising to $23.2m to FY24 where he forecasts a dividend per share payout of 5.1 cents per share.
This is Rakon’s second time as an NZX darling.
The first was during the 2000s as it rode the first wave of the smartphone boom.
Last month Rakon reported a first-half net profit of $18.9m from last year’s $4.6m, and confirmed its twice-increased profit forecast of full-year operating earnings between $44m and $49m.
Underlying ebitda improved to $26.4m from $11.4m in the first half of FY2021.
Revenue increased to $85.4m, vs the prior period’s $59.5m.
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