Daily ShareChat: Rakon

Crystal timing devices manufacturer Rakon's 400,000 euro (NZ$709,220) purchase of France-based competitor Temex is positive and should hasten the turn-around in both company's under-performing and loss-making French operations, says Jason Familton, an analyst at First NZ Capital.

Rakon's French operations lost NZ$4.2 million before foreign exchange movements in 2009 and $6.1 million in 2010, having made losses since they were acquired as part of the C-Mac acquisition in February 2007.

"We understand Temex has revenue of about 11 million euro per annum and is budgeted to be very modestly profitable in the second half. We have not assumed any significant synergies at this stage," Familton says.

Rakon has significant growth opportunities in the smartphone, telecommunications infrastructure and femtocell markets, he says.

"The Temex acquisition also increases the company's exposure to the high-performance OCXO markets."

Temex, a more than 30 year-old business, has a primary focus on high-precision OCXOs into the space, aviation, under-sea telecommunications, mining exploration and defence markets.

"Execution, as always, remains the key and, after earnings disappointments in 2009 and 2010, the company needs to deliver on its earnings guidance to regain the market's confidence," Familton says.

Rakon has forecast earnings before interest, tax, depreciation and amortisation in the year ending March 2011 will be between $25 million and $30 million.

Recommendation: Outperform.

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