For example, it’s making asset disposals, reducing the leverage on its balance sheet and is set to become a much more profitable business over the medium term. In addition, Glencore is forecast to return to profitability in the current financial year and to then increase its bottom line by around 45% next year. This puts it on a forward price-to-earnings (P/E) ratio of 22.8 and while this is relatively high, further earnings growth could be on the cards.

Clearly, Glencore’s bottom line is heavily dependent on commodity prices, but with it having a sound strategy and upbeat near-term prospects it could continue to beat the FTSE 100 over the medium-to-long term.

Future income play

Shares in Renew Holdings (LSE: RNWH) have also beaten the FTSE 100 in recent months, with them being up by 14% versus a fall of 12% for the wider index over the past year. A key reason for this could be that the engineering services company is expected to record upbeat growth numbers over the next two years, with Renew’s bottom line forecast to rise by 5% in the current year and then by a further 13% next year.

While Renew has strong growth potential, its shares seem to offer significant upside prospects. That’s because they trade on a price-to-earnings growth (PEG) ratio of just 0.9 and with Renew paying out only 29% of its profit as a dividend, there’s also scope for a rapid rise in shareholder payouts. This means that while Renew currently yields just 2.2%, it could become a much more appealing income play over the medium-to-long term.

Look elsewhere

Meanwhile, shares in RM2 International (LSE: RM2) have disappointed in the last year, with the pallet designer and manufacturer recording a fall of 62%. Clearly, it’s always difficult to catch a falling knife and with RM2 having been lossmaking in each of the last three years, it’s little surprise that investor sentiment is relatively weak. That’s especially the case since there are a number of other smaller companies that offer upbeat growth prospects at relatively appealing prices.

While RM2 has the potential to turn its financial performance around, it may take time to come good. That’s despite it announcing in the most recent interim results that it has signed contracts with 15 customers and the fact that it’s debt-free. As such, for risk-averse investors there seem to be better options available elsewhere.

The post Do Glencore plc, Renew Holdings plc and RM2 International SA have FTSE 100-beating potential? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at three companies that appear to have potential as world-beaters: Sirius Minerals (LSE: SXX), RM2 International (LSE: RM2) and AFC Energy (LSE: AFC).

Great long-term prospect

Sirius Minerals owns “the world’s largest and highest-grade polyhalite deposit”, and aims to become “a leading global multi-nutrient fertilizer producer”. Furthermore, the company forecasts impressively low operating costs, “delivering industry leading cash margins of 70% to 85%”, and, just for good measure, reckons the resource has a lifetime of “100+ years”.

Sirius has done a fantastic job of gaining planning approval for the project, which sits in the North York Moors National Park. Working towards first production in 2021, the company forecasts a capital funding requirement of $3.56m, the aim being for part to come from new equity but the majority from borrowing.

At a current share price of 15.5p, Sirius is valued in the market at about £350m. If management can do as good a job on the capital funding as it did on gaining planning approval, and if there aren’t too many setbacks or cost-overruns in construction, investors today could be looking at a great long-term prospect, even with a sizeable shareholder dilution in the first stage of funding.

One to watch

RM2 International is in the process of commercialising its innovative long-life composite pallet, together with tracking and management software, “to establish a disruptive presence in global pallet supply”.

However, the company has endured some setbacks and delays. Last September, management said it would be changing the pallet coating as a result of customer feedback, pushing back mass production into 2016. The delay necessitated a £30m placing. Today, RM2 has announced it will be shifting production to China. However, as a consequence of moving some of its manufacturing assets from its existing Canada base, the company “will fall well short of its 2016 production target”.

The business — valued at about £150m at the current 37.5p a share — still has the potential to deliver, but with the history of delays and a further fundraising looking like it’s in the offing, it may be prudent to watch this one for the time being.

Riskier proposition

AFC Energy describes itself as “the world’s leading developer of low-cost alkaline fuel cell technology”. The company is focused on large-scale industrial applications, and says its technology “has the potential to be the catalyst, which transforms the way in which industries of today produce energy for tomorrow”. The company has completed an ambitious programme to prove its technology at a gas plant in Germany — only marginally over schedule and marginally under the target output — and is currently busy optimising the system.

AFC is aiming for 1,000MW of capacity installed or under development by 2020, and so far has a 50MW project development agreement in Korea with an expected revenue to the company of £400m over 10 years.

At a current share price of 15p, AFC is valued by the market at £46m. I see a clean-energy technology company as an inherently riskier proposition than a potash mine or pallet manufacturer, but AFC does look to be an interesting prospect in this sector.

The post Can Sirius Minerals PLC, RM2 International SA & AFC Energy plc Grow Into World-Beaters? appeared first on The Twelfth Magpie.

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A. Former bosses of the global drinks giant and the High Street stalwart both now sit on the board of directors at RM2.

If that’s not sufficient reason for thinking that the little-known small cap might be worth a closer look, there’s also the fact that renowned fund manager Neil Woodford has built a substantial stake in the company.

Drink to success

Paul Walsh was chief executive of Diageo from 2000 to 2013. It was a hugely successful period for the company, and Walsh delivered a tremendous return for investors.

The group has struggled somewhat since, in large part due to the downturn in previously booming emerging markets and adverse exchange rate movements. But Diageo remains a business with valuable brands, and is expected to return to modest earnings growth next year, accelerating to high single-digit growth the year after. Investors buying today on a current-year forecast price-to-earnings (P/E) ratio of 21 may need to be patient.

Food for thought

Stuart Rose was parachuted into M&S as chief executive in 2004. He fought off a takeover attempt by retail tycoon Philip Green and revived M&S’s fortunes … until the credit crunch and consumer downturn hit the High Street. He departed in 2010 with the company having begun to recover from the recession.

M&S then continued what has been a slow recovery. Its food business has thrived, but group progress has been held back by a persistently disappointing performance from general merchandise. A forecast P/E of 12 for 2016 is below the long-term FTSE 100 average of 14, but the company probably doesn’t deserve to rate higher until it shows it can fire on both cylinders.

A taste for refined pallets

RM2 International joined AIM in January 2014, raising £137m in a placing at 88p a share. The company’s ambitious goal is to become a major player in the global pallet industry with its revolutionary engineered composite product and advanced tracking and optimisation systems.

Paul Walsh and Stuart Rose were non-executives from the off, and the IPO was also backed by Neil Woodford, who was then at Invesco Perpetual. When Woodford set up alone in the summer of 2014, he immediately began acquiring RM2 shares. His first disclosure in June showed a holding of 24 million shares (7.5% of the company). By August last year, this had risen to 68 million (21.1%).

There was bad news in September, when RM2 announced a delay in its production and revenue targets, when deciding to change the coating on its pallets following customer feedback. The company did a £30m placing at 40p a share as a result of the delayed roll-out. Woodford bought shares in the placing which ramped his stake up to 27%, and subsequent buys have taken it up to 28.1%.

RM2 clearly has a huge potential market and has already signed contracts with 15 customers, including two of the largest packaging companies in North America. Revenue growth is on the horizon but profit is some way off. However, with Walsh, Rose and Woodford all behind the company, and the shares currently changing hands at just 31p, this looks one of the more interesting bets on an ‘industry disruptor’ for investors seeking a higher risk/higher reward opportunity.

However, more risk-averse investors would probably be wise not to ditch Diageo and M&S, which, while not primed for stellar returns, could still reward patient investors handsomely over the long term.

The post Should You Ditch Diageo plc & Marks and Spencer Group Plc And Buy RM2 International SA? appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The two companies are in very different businesses, but have some things in common:

• Currently loss-making, but huge potential
• Fundraisings at/near all-time lows announced this week
• Woodford taking the opportunity to significantly increase his investments

RM2 International

RM2 International listed on AIM in January 2014, raising £137m at 88p a share. Woodford soon bought into the company with the launch of his CF Woodford Equity Income Fund in the summer of last year, notifying a 7.5% stake in June. By the end of August this year, his holding was up to over 21%.

A placing by RM2 announced this week to raise £30m is at an all-time low share price of 40p. Woodford has subscribed for shares in the placing, which will take his interest to 27% of the enlarged share capital. Supporters like Woodford are averaging down from higher prices, but new investors today are being offered a low entry point, with the shares currently trading in the market at 43p.

RM2 is seeking to establish “a disruptive presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use and management of composite pallets”. The company has some heavyweight non-executive directors on board, including Paul Walsh (chief executive of Diageo from 2000 to 2013) and Stuart Rose (boss of Marks & Spencer from 2004 to 2010).

RM2 is not only currently loss-making ($25m over the last six months), but also has virtually no revenue at this stage. This week’s placing follows hot on the heels of a setback. The company had expected a substantial upswing in production and revenue to begin in Q3 this year and accelerate through Q4. However, feedback from customers has led management to drop a friction coating method for pallets in favour of a new gel-based system, which has delayed production and revenue targets to 2016.

My problem with RM2 is not that it’s had a hiccup — to be expected with a developing business — but that I haven’t been able to find any detail on the long-term revenue opportunity for the company and the kind of margins it hopes to make. However, it’s very likely Woodford has a far better idea of RM2’s prospects than me!

Netscientific

Netscientific, which funds and builds companies in the area of biomedical and healthcare technology, listed on AIM in September 2013, raising £30m at 160p a share. Again, the CF Woodford Equity Income Fund acquired an initial stake in this one last year — a 4.4% holding notified on 4 July, which quickly went up to 10% a week later. The most recent disclosure came in June this year, at which point Woodford’s stake had risen to 29.4%.

Netscientific’s shares reached a high of over 200p as recently as July. Today the company has announced a placing to raise £20m at 120p (10p above the all-time low), although you’ll currently have to pay 132p in the market. Woodford has subscribed for shares in the placing that will take his stake in Netscientific to a whopping 45.3% — a level which requires a waiver of rules that oblige him to make a takeover offer for the company!

Netscientific hasn’t had the kind of setback suffered by RM2, although it has been through a strategy review and operational management reorganisation. The purpose of the fundraising is to accelerate the development of the group’s two lead portfolio companies “towards significant value inflection milestones and exits”.

Woodford only owns one pallets business, but he has a number of similar-type investment companies to Netscientific in his portfolios, as well as numerous individual early-stage businesses in the same general area. So, while he’s clearly very keen on Netscientific, he really spreads his bets widely in this space, which is something well worth bearing in mind.

The post Neil Woodford Ramps Up His Stake In RM2 International SA And Netscientific PLC appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Tungsten (LSE: TUNG) and RM2 (LSE: RM2) are both falling this morning after the two companies issued interim trading updates. Pallet producer RM2’s trading update was the more disappointing of the two, and the market has reacted accordingly, sending the company’s shares down by as much as 30% in early trading. And it’s clear why the market has reacted in this way.

Based on feedback from customers, RM2 has decided to change the design of its pallets. Specifically, management has decided to change the friction coating method from powder coating to a gel-based system. This change has been made to address customers’ health, hygiene and safety needs as well as bringing efficiencies and cost savings to the manufacturing process.

However, while this change should benefit the company over the long term, RMs short-term production will take a hit. As a result, revenue and production numbers for the full year will be significantly below previous guidance. 

City analysts had been expecting RM2 to report revenues of £12.3m for 2015 and a pre-tax loss of £8.1m before breaking even during 2016. Production delays are likely to mean that it will now take longer for RM2 to generate a profit.

Still, demand for RM2’s pallets remains high and the group had $83m in cash at the end of 2014. So, there’s no clear reason to sell up just yet. 

Moving in the right direction 

The market has also reacted negatively to Tungsten’s relatively upbeat trading statement issued today. In a statement issued ahead of the company’s annual meeting, management revealed revenues were up 20% year-on-year during the first four months of the financial year. What’s more, all other key performance indicators seemed to be moving in the right direction.

Two new buyers had contracted to join the Tungsten Network in the period, and six existing buyers agreed contract renewals, at an average expected fee increase of 22%. Nearly 7,000 net additional e-invoicing suppliers were activated in the four-month period. 238 suppliers are now registered to use Tungsten Early Payment with 89 live.

After raising £17.5m earlier this year, Tungsten’s management believes that the company has sufficient cash resources to be able to deliver its current strategy. Management made the same statement a few months before the June capital raising. 

City analysts are expecting Tungsten to report a pre-tax loss of £18.3m for 2016 and a pre-tax loss of £5.3m for 2017. Based on these forecasts, Tungsten’s cash balance might not last long. 

Bright prospects 

Iofina’s (LSE: IOF) shares have slumped by more than 50% year-to-date, against the backdrop of challenging iodine market, where prices are below historical trends. Nevertheless, management has reacted quickly to the challenging environment by slashing costs and ramping up production.  

And thanks to these actions City analysts expect Iofina to report its maiden profit this year. Analysts are expecting a pre-tax profit of £0.1m for full-year 2015 on revenues of £16.8m. Earnings per share are expected to jump 641% during 2016 to 1.53p and on this basis Iofina is trading at a 2016 P/E of 12.5. If the company can meet these forecasts, it could be a great play for growth investors.

The post Could It Be Time To Sell Iofina plc, Tungsten Corp PLC And RM2 International SA? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

However, April proved to be a busier month than usual. A number of trades caught my eye among Woodford’s latest dealings: in particular, additions to his holdings in Legal & General (LSE: LGEN), BAE Systems (LSE: BA), Centrica (LSE: CNA), SSE (LSE: SSE) and RM2 International (LSE: RM2).

There’s only one blue-chip financial, one blue-chip financial…

Woodford continues to be less than keen on big FTSE 100 banks and insurers. In fact, he holds only one financial company from the blue-chip “premier league”, and that’s Legal & General.

Woodford’s team describes the life insurance industry as having been “opaque and unpredictable” historically, but sees, with L&G’s “relentless focus on cash generation”, a chief executive “transforming the business into a much simpler, easier to understand business with strong growth prospects”.

L&G trades on an undemanding forward P/E of 14, while the prospective dividend yield — to which Woodford remains attracted — is about 5%.

RM2, RM who?

AIM-listed RM2 International will not be as well-known to most investors as the likes of L&G. The pallet-maker “is still at an early-stage of its development but has tremendous potential to disrupt the pallet industry”, and Woodford is very keen on the company.

In adding to his holding, his fund update noted that RM2’s “recent contract win with PPG International [an S&P 500/Fortune 200 company] is very positive news, in our view, and could herald the broader adoption of its composite pallets”.

RM2 is loss-making at present, but revenues are forecast to leap from £18m this year to £65m next year, with the company starting to move towards profitability.

3 blue chips bulked up

Back to the FTSE 100, and Woodford added to a number of blue chips — that “demonstrated weakness in the run-up to the General Election” — at “what we consider to be attractive valuation levels”. These companies included BAE Systems, Centrica and SSE — described by Woodford’s team as “important income contributors”.

The shares of “Big Six” energy firms Centrica and SSE had been under the cloud of potential Labour Party meddling, but have rallied on the back of the Tory election victory. As such, investors today won’t get quite as high a yield as Woodford was able to secure, although the prospective income from the pair remains attractively above the market average: Centrica at 4.4% and SSE at 5.5%.

Conversely, BAE’s shares are currently a bit lower than when Woodford was buying, so investors today are getting a slightly better yield deal. The prospective income from BAE is 4.2%.

Other “important income contributors” that came in for top-ups during April were GlaxoSmithKline, Game Digital, Next and Royal Mail, while the fund “marginally trimmed” its position in BT, “where the share price is now back at levels not seen since early 2001”.

The post Neil Woodford Buys More Legal & General Group Plc, BAE Systems plc, Centrica PLC, SSE PLC & RM2 International SA appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.