Rakon ($RAK.NZ) is a New Zealand-based designer and manufacturer of high-performance frequency control technology. $RAK.NZ had been a star performer on the NZX since listing in May 2006 (the company was started in 1967). The share price has however dropped significantly over the last 12 months. The current share price is NZ$1.82 – this is $RAK.NZ’s 52-week low. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $RAK.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.99 for $RAK.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 9.3% above the current share price of NZ$1.82.

Assumptions

• Revenue: Reuters aggregates four analysts covering $RAK.NZ and the mean estimates of 2009 and 2010 revenues are NZ$212.4 million and NZ$270.4 million respectively. For our analysis we have used NZ$210.0 million in 2009, NZ$265.0 million in 2010 and NZ$315.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 15% to 2011. Reuters has $RAK.NZ‘s EBITD margin at 14.0% last year and an average of 14.75% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$20.0 million in 2009 then NZ$25.0 million in 2010 then NZ$20.0 million per annum moving forward.
• Discount Rate: 11.0%. $RAK.NZ is not included in the PwC New Zealand cost of capital report. PwC puts the discount rate (WACC) for the NZ market at 9.5%.
• Terminal Growth Rate: 5.0%.

Our analysis incorporates the cash and debt the $RAK.NZ balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None