By Jenny Ruth
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Friday 28th May 2010 |
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Rakon's management is upbeat about its prospects, believing the company is well-positioned for 2011, says Tristan Joll, an analyst at Goldman Sachs JB Were.
"This was supported by independent forecasts highlighting upside in most of the company's fledgling markets," Joll says. It was pleasing the company specifically alluded to recent success with tier one phone makers, he says.
Last week, Rakon reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $4.3 million, down from $18.5 million the previous year, although second-half EBITDA was $7.2 million compared with an EBIDA loss of $2.9 million in the first half.
Joll says full-year gross margins were 4% below his forecast and continue to test historical averages.
"We are only moderately concerned by this, given the belief that UK margins remain above 60%, albeit subject to greater price pressure, and French margins are to some extent decreasing 'by design' as Rakon moves volumes to Bangalore," he says.
The company sees longer-term margins normalising at current levels.
"We remain supporters of Rakon's strategic initiatives and see potential upside in several of the end markets highlighted by management," Joll says.
Nevertheless, the shares are trading at a price-to-earnings ratio based on 2011 earnings comparable to its peers.
"In our view, this underlines the importance of earnings growth."
BROKER CALL: hold.
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