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RM2 International: Yep – it was another bad week ahead for Woodford

By Cynical Bear | Saturday 2 December 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.

A week ago, I noted that news was due from the disruptive pallet manufacturer, RM2 International (RM2) and doubted that it was going to be positive. Well, it finally came out yesterday and I wasn’t disappointed although assume Neil Woodford and the long suffering shareholders of this and his Patient Capital Trust (WPCT) probably were.

As I covered last week, RM2 is burning its last remaining cash at a fast rate and needs to raise significant funding to both keep the lights on and to actually produce these pallets in any meaningful numbers.

Yesterday’s update stated that:

“On 27 September 2017, the Company stated it intended to confirm, subject to securing the necessary funding, a 12-month production forecast for its Chinese contract manufacturing partner, Zhenshi, by the end of November 2017. The Company today announces that it has not yet been able to secure the necessary funding to confirm this forecast.”

Nevertheless, it remained confident that it could remain funding on receipt of purchase orders. Just needs a few purchase orders for these pallets that no-one seems to want or need, that’s all! That may be a bit unfair as apparently there has been some positive feedback from customers…although still no purchase orders.

The funding position is getting critical. Previously, it stated that it had $16.6 million as at end July 2017. Now it estimates its end-November balance to be $6 million, so over $10 million spent in four months. RM2 has funds available until end-January and continues to try to reduce overheads and monetise certain historical assets.

All in all it doesn’t look good and the share price dropped further to close at 2.625p. Is anyone really going to rescue this cash-guzzling business in the next two months?

To be fair to Mr Woodford, it wasn’t all bad news last week, as the “disruptive” mattress maker, Eve Sleep (EVE) put out a positive sounding trading update this week in which it continued its 100%+ growth and talked about UK profitability in Q4 2018 and group profitability in 2019. The management team appears to be continuing to execute effectively on its plan and, importantly, the marketing costs are coming down in percentage terms.

It did reference additional investment spend to facilitate his growth but with £37 million as at end June, it should have plenty of cash for the foreseeable future; it’s not as if it spends a couple of million a month doing bugger all like its sister company RM2 after all!

At a share price around 100p, it still feels more than fully valued at £135 million for a me-too mattress manufacturer; however, I’m more neutral on the business than I was.

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