It's usually worth paying attention to director dealings, as share purchases can often be a signal that the trading performance of a company is better than the market is giving it credit for. And when more than one director gets in on the act, as is happening now at pallet manufacturer RM2 International (RM2), it can be a very strong signal indeed. Add in last month's 24m share, or 7.5 per cent, purchase by star fund manager Neil Woodford, who has made RM2 the largest Aim-listed holding in his new Woodford Equity Income Fund, and this blue-sky growth stock is definitely worth a closer look.
- Director dealings
- Neil Woodford’s fund buying shares
- Well-connected board of directors
- Innovative product with huge market
- Manufacturing problems
- Uncertain order timeline
RM2's chief executive John Walsh is the most recent executive to give the shares a vote of confidence with a 1m share purchase last week at 62p (see table). He's part of a star-studded board, including chairman Ian Molson, a scion of Canada's Molson family - part-owners of brewer Molson Coors (NYSE: TAP), former Marks and Spencer (MKS) boss Stuart Rose and former Diageo (DGE) boss Paul Walsh.
| RM2 Director Deals | ||||
| Director | Shares purchased | Price (p) | Value (£) | Date |
| Ian Molson* | 500,000 | 94 | 470,000 | 10-Jan |
| Ian Molson* | 225,000 | 79 | 177,750 | 30-Jan |
| Ian Molson* | 275,000 | 76 | 209,000 | 11-Mar |
| Ian Molson* | 500,000 | 70 | 350,000 | 19-Mar |
| Ian Molson* | 225,000 | 73 | 164,250 | 08-Apr |
| Ian Molson* | 500,000 | 51 | 255,000 | 16-Jun |
| Jan Dekker | 176,000 | 70 | 123,200 | 14-Apr |
| Jan Dekker | 100,000 | 52 | 52,000 | 18-Jun |
| John Walsh | 1,000,000 | 62 | 620,000 | 17-Jul |
| Paul Walsh | 100,000 | 54 | 54,000 | 16-Jun |
| Paul Walsh** | 5,000 | 74 | 3,700 | 27-Mar |
| Total | 3,606,000 | 2,478,900 | ||
*Shares acquired by a discretionary trust of which the principle beneficiaries are the children of Ian Molson **Shares acquired by Julie Walsh, wife of non-executive director Paul Walsh | ||||
Admittedly, the wider market has been less keen since the January Aim float, which raised £137m at 88p. The shares sank to 51p after teething problems with its supply chain hit first-half pallet production. But the opening of a new Canadian facility, doubling capacity, should have dealt with the operational issues.
And RM2 revolutionary pallet design called BLOCKPal still has massive potential. The pallets are made from a fibre and resin composite which is reportedly superior to existing wooden or plastic pallets because it’s more durable, light, long-lasting, hygienic, safe and sustainable, and it has a lower life-cycle cost. And the market is massive with an estimated 12bn-13bn pallets in circulation around the world and demand for around 6.2bn new pallets annually.
But while the potential is blue sky, it is still early days so the risks are very high. Key to RM2's success will be converting blue-chip customer interest into substantial long-term contracts. The company has been selling and renting pallets in small quantities so far as the majority of its customers "have complex systems and make changes to their critical processes cautiously and deliberately", according to Mr Walsh. He nevertheless remains "confident of converting, over the next three to six months, the detailed contractual discussions into long-term orders of significant scale".
RM2 INTERNATIONAL (RM2) | ||||
|---|---|---|---|---|
| ORD PRICE: | 61p | MARKET VALUE: | £196m | |
| TOUCH: | 61-62p | 12-MONTH HIGH: | 111p | LOW: 51p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | 6 | |
| NET ASSET VALUE: | ** | NET CASH: | ** | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m)* | Earnings per share (¢)* | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | nil | -6.3 | na | nil |
| 2013 | 0.1 | -16.3 | na | nil |
| 2014* | 59 | 0.6 | 0.1 | nil |
| 2015* | 236 | 28 | 7.0 | nil |
| 2016* | 469 | 64 | 16 | nil |
| % change | +99 | +129 | +131 | - |
Normal market size: 7,500 Matched bargain trading Beta: 0.87 *Cenkos forecasts, adjusted PTP and EPS figures **Negative shareholders' equity of £52m at 31 December, prior to IPO and £137m fund-raising | ||||
