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Could It Be Time To Sell Iofina plc, Tungsten Corp PLC And RM2 International SA?

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.

That said, at present it's difficult to place a value on Iofina's shares. There are many risks ahead for the company, and while it looks cheap based on earnings estimates, there's no telling what the future holds. 

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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.