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RM2 International: Another bad week ahead for Woodford?

By Cynical Bear | Monday 27 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

If I was Neil Woodford I would wake up each Monday morning thinking, for the love of god, please can this be the week with some good news to come out of the Woodford Patient Capital Trust (WPCT) portfolio. Unfortunately, I don’t think it will be this week as it looks like crunch time is approaching for the “disruptive” pallet-maker, RM2 International (RM2).

I last covered RM2 at the time of its interims in late September (HERE) in which it stated that following the most recent $20 million loan note issued in the summer it had enough funds to keep going into early 2018; however, it would need new funds if it actually wanted to make any of its fancy smart pallets.

In terms of timing, it stated in tis interims that:  “although we have experienced some delays in China, we are committed, subject to securing the necessary funding, to confirming a 12-month forecast for Chinese manufacturing by the end of November 2017.”

Well, the end of November is this week and so is RM2 going to announce a significant funding round to support a substantial ramp-up in production of the pallets?

In terms of funding, it made some positive noises in the same statement as follows:

“The Company confirms that it is in an advanced discussions with one particular party, which has conducted extensive due diligence on the Company over the past few weeks, and hopes to be able to conclude negotiations in the coming weeks. However, the Company stresses that there is no guarantee any agreement will be reached with this party or on terms acceptable to the Company. Should the Company not be able to secure sufficient additional funding, it will not be able to face liabilities generated by contractual commitments, including those for manufacturing and operations.”

That was two months ago and there has been no news since which I don’t take as particularly encouraging as negotiations were meant to conclude in the “coming weeks”, especially the scary sounding wording about an inability to “face liabilities”.

I sense that this is all coming to a head. The share price has been dropping consistently in recent weeks off the back of no news and has dropped almost 50% from the time of the interims to 3.125p today.

Accordingly, I suspect that there will have to be some news by the end of this week and it wouldn’t surprise me if this was yet another member of the Woodford Patient Capital Trust portfolio that made the backward move from being quoted to unquoted, just like Sphere Medical did earlier this year, as Woodford is forced into backing a take-private.

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