US Edition 
Questor share tip: Hold RM2 International
Pallet manufacturer RM2 International has some high profile supporters, but until it turns profitable the shares are high risk, says Questor
RM2 International
76¼p-½p
Questor says HOLD
PALLET manufacturing company RM2 International has high-profile directors in former Diageo chief Paul Walsh and ex-Marks & Spencer boss Sir Stuart Rose on the board. And more recently it added one of Britain’s best-known value investors to its shareholder register in Neil Woodford. Questor thinks it is time to take a closer look.
The Luxembourg-based pallet manufacturer has developed a composite alternative to wooden pallets that is longer lasting and aims to reduce costs.
Mr Woodford’s new fund Woodford Investment Management acquired 24m shares, or 7.5pc of the company in June. Management has also backed the company with John Walsh, chief executive, spending about £620,000 purchasing 1m shares at 61.6p each on July 18, bringing his total holding to 21m, or 6.6pc of the total.
The pallet manufacturer expanded its capacity in Canada in May and broker Cenkos expects pallet production to increase rapidly in the coming months. It will initially focus on the US market where 2.3bn pallets are used a year, before expanding into Europe. About 85pc of the business is renting pallets to customers such as global consumer goods giants.
Questor thinks the confidence in the shares is completely at odds with the financial performance underneath. In the company’s most recent annual results it reported a loss before tax of $77.2m (£45.7m), on revenue of just $104,204 in the year ended December 2013. That was more than twice the loss reported in 2012.
Digging a little deeper into the numbers it looks like the majority of the loss in 2013 came from a $40m payment to settle warrants that were issued to private equity investors.
The company has had a troubled life since flotation. Shares closed at 101p on the first day’s trading in January, but had slumped to 54p by the time of the annual results on June 16. Questor is cautious on the outlook until the company moves into profits. Hold.
Questor previously recommended selling the shares due to the debt levels, however the debt was retired following the flotation on aim leaving the group debt free to expand operations and the recommendation moved to a hold.