MONEY TALKS: Here's to you Mr Robinson - Rakon's rise & fall

By Paul McBeth

If you became a stock watcher this year it would probably surprise you that Rakon, which makes GPS components among other things, was voted the top hi-tech company of the decade just two years ago.

It wasn't a woolly award either - New Zealand Trade & Enterprise gathered up some pretty smart boffins, and they all decided Rakon was the bee's knees between 2000 and 2010. If you told that to a Rakon shareholder new to the register, they'd probably choke on their chardonnay.

Because Rakon this week did what it's done so many times in the past few years - over-promise and under-deliver by downgrading its profit expectations.

The Auckland-based company expects earnings before interest, tax, depreciation and amortisation between $5 million and $7 million in the 12 months ended March 31, having already cut its expectations to between $8 million and $12 million in December.

The market reacted accordingly, slicing a whopping 29 percent from the share price and plunging it to a record-low 26 cents. Try thinking about this way - a few years back, Rakon was touted as one of the country's next billion dollar companies - at 26 cents a share valued it at just shy of $50 million.

That shouldn't really be a surprise. Brokers and analysts have been going cold on Rakon for a while now - in the latter half of 2011 Craigs Investment Partners was telling its clients to steer clear of the manufacturer, and at the time, head of private wealth Mark Lister told BusinessDesk you'd be brave to buy into it.

It was a pretty rapid turnaround. When Rakon floated in May 2006, it sold at $1.60 a share in a heavily oversubscribed offer. In fact, some people in this office couldn't get a piece of the action for love nor money.

A year later those shares were up to $5.80, but they've been on a downward spiral since then.

More recently, Rakon has been in the invidious position of having to sack a bunch of workers, meaning the goodwill it's built up among the public for the smart stuff it does has withered away slightly.

Still, it was something Rakon had to do, and not overly surprising given the amount of money it's thrown at the Chinese factory.

Manufacturing tends to drift to the cheapest place, and if there isn't an immediate advantage in keeping the work at home, a company had to look elsewhere if it wants to survive.

The latest woes have been put down to tough price competition in the smart phone market - an area Rakon was hoping to make good inroads into.

The problem is that these excuses have become something of a regular thing. I can't remember Rakon's executives ever putting up their hand and saying 'we got that wrong'.

The closest they got was when chairman Bryan Mogridge told shareholders last year that directors' fee would be linked to Rakon's earnings: “We admit our performance hasn’t been good especially when compared to where it has dropped to now from the overbid highs of 2007.”

But in the same breath he had a go at shareholders and commentators, saying “some (advice) is helpful but a large percentage is not and often reflects a serious misunderstanding about the business that we own together and what it does, what its strategies are and the potential that it has.”

That's not the sign of a board that's open to discussion with its owners. Which is more than just the founding Robinson family.

Sure, between founder Warren Robinson and his sons Darren and Brent the family still holds about a third of Rakon, but that's not a majority - even it if is enough to be annoying.

Managing director Brent Robinson has been in charge since 1986. That's coming up to three decades, in which time he's grown the annual revenue from just $1 million to $178 million years in 2010.

That's an admirable record, and one you should associate with a fellow who was quoted as far back as the 90s as saying Rakon had to "export or die".

Yet, Mogridge felt he had to defend the Robinsons' overrepresentation on the board at last year's AGM, saying it commensurate with the years of experience they bring.

In tech companies, it's a quaint notion to value experience over the innovation and energy that comes with youth, and one that's getting increasingly harder for Rakon to cling to.



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